Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said he disagrees with new US Federal Reserve chair Kevin Warsh’s stance on forward guidance as both countries continue to use monetary policy to combat inflation stemming from the Middle East conflict.

On 17 June, Warsh delivered his first Federal Open Market Committee (FOMC) press briefing as Fed chair, where he deliberately distanced the Federal Reserve from the post-Greenspan practice of extensive forward guidance — the use of signals to communicate the likely future path of monetary policy.

Not well suited

“Absent also is so-called ‘forward guidance,’ which we agreed was not well suited to the current policy conjuncture,” Warsh said.

At the BSP’s own monetary policy briefing last Thursday, Remolona pushed back against that view.

“I don’t agree with the way he said it,” the BSP chief said.

“The policy rate is an overnight rate. By itself, it doesn’t do very much. So we need to influence the longer-term rates, and we do that through forward guidance.”

The Gulf conflict has pushed inflation to three-year highs in both the United States and the Philippines. However, the two central banks have responded differently.

Benchmark rate unchanged

The FOMC unanimously opted to keep its benchmark rate unchanged, citing strong economic growth, robust capital investment, and steady employment, marking its second consecutive policy hold.

By contrast, the BSP raised its key policy rate by another 25 basis points last week. The Monetary Board, chaired by Remolona, cited elevated global oil and fertilizer prices, as well as lingering upside risks from the broader spillover effects of the energy shock. The move marked the BSP’s second consecutive rate hike since the conflict escalated in March.

Forward guidance can influence not only financial markets but also the lending, investment, and pricing decisions of banks, businesses, and consumers. While it can reduce uncertainty and enhance the effectiveness of monetary policy, excessive reliance on guidance may limit policymakers’ flexibility and undermine credibility when economic conditions diverge from forecasts.

Conversely, too little guidance can leave investors, financial institutions, businesses and households with limited insight into how policymakers are likely to respond to changing economic conditions.