Decisions made by the US Federal Reserve remain paramount to the Bangko Sentral ng Pilipinas (BSP)’s own monetary policy decisions, according to central bank chief Eli M. Remolona Jr.
“The world is interconnected,” he said in a Friday television interview.
“But the one that affects us the most is the easing or hiking cycle of the Fed’s monetary policy. So we watch that and its implications for the world and the global economy,” he added.
As the world’s largest economy, decisions by the Federal Reserve have significant spillover effects on other central banks. While the Fed and the BSP set policy independently, the Fed’s stance often constrains the BSP’s policy space in practice.
April saw diverging responses from both countries amid the global energy shock. The BSP raised its key policy rate by 25 basis points to 4.50 percent, with Remolona signaling the effective end of the central bank’s easing cycle as the Middle East conflict pushed its 2026 and 2027 inflation forecasts beyond target.
The Fed, meanwhile, decided to keep its key policy rate at 3.50 to 3.75 percent, marking the third consecutive meeting in which it maintained a “wait-and-see” stance.
“We see the current stance of monetary policy as appropriate to promote progress toward our mandate of maximum employment and 2 percent inflation goals,” former Fed chair Jerome Powell said during his final press briefing in April.
In theory, higher interest rates in the Philippines relative to the US should support the peso and help temper inflation, albeit at the cost of slower growth and potentially more volatile capital flows. However, despite relatively higher domestic rates, the peso has remained weak, trading at P61.69 as of last Friday, near historic lows and down 7 percent since the conflict’s escalation in March.
Headline inflation also rose to a three-year high in April, with the BSP earlier noting that second-round effects typically take about two quarters after an oil price shock to fully manifest. Remolona has maintained a hawkish stance, noting that an off-cycle rate hike ahead of the Monetary Board’s 18 June meeting remains an option.
“We’re considering it,” he said on Friday.
“And that’s very close to the next scheduled policy meeting. So at this point, it’s a toss-up whether we do an off-cycle hike or just wait for the regular meeting, which is not that far away anyway.”
Meanwhile, Kevin Warsh, Jerome Powell’s successor as Fed chair, was officially sworn in at the White House on Saturday (Philippine time), vowing a “reform-oriented” approach amid heightened tensions between the Fed and the Trump administration during Powell’s tenure, particularly over central bank independence and interest rate policy.
“I will lead a reform-oriented Federal Reserve, learning from past successes and mistakes alike, escaping static frameworks and models, and upholding clear standards of integrity and performance,” Warsh said.