Medalla signals anew extended pause on rates
Cooling inflation and an uncertain economic outlook are giving central banks in the region, including the BSP, a reason to be cautious about further tightening.
The interest rate differential with the US is a factor to be considered by the Bangko Sentral ng Pilipinas in lowering, raising, or maintaining interest rates. “If the US (Federal Reserve) is not cutting, it’s hard for us to be cutting lower,” BSP Governor Felipe Medalla said. (Photo from Felipe Medalla Twitter account).
Bangko Sentral ng Pilipinas Governor Felipe Medalla on Friday signaled anew an extended pause on interest rates, as easing inflation reduces the odds for more hikes and the economy doesn’t yet need cuts to support expansion.
The Central Bank chief made the statement in a television interview after BSP’s Monetary Board decided to keep its policy rate unchanged on Thursday.
Cooling inflation and an uncertain economic outlook are giving central banks in the region reason to be cautious about further tightening.
“Right now the economy is strong. That’s why pressure on us to cut is not so high,” Medalla explained.
Medalla added the BSP might consider reducing interest rates if the US Federal Reserve decides to implement a more accommodative monetary policy.
However, he mentioned that he does not expect this to happen in the current year.
He also added that the market’s expectations of a Fed rate cut may be overly optimistic and that they are underestimating the determination of the US central bank to address inflationary pressures.
Reluctant to cut
“If I were in their shoes, I will be reluctant to cut,” he said when asked when he sees the Fed easing up on interest rate in the US.
The BSP, Medalla added, wants to make sure it’s able to deliver headline inflation below 4 percent as early as possible.
Interest rate differential with the US is also one factor that BSP will consider, Medalla said, adding that the market thinks this is on the narrow side.
Earlier this week, Medalla told reporters that it would be hard to cut interest rates at a time when the interest rate differential with the US Federal Reserve matters to foreign exchange players.
“If the US [Federal Reserve] is not cutting, it’s hard for us to be cutting lower,” he said.
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