BSP puts economy ahead of public sentiment

Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said the central bank’s policy decisions must prioritize the overall well-being of the economy over public approval, noting that the upcoming El Niño season remains a key concern in the BSP’s outlook.

Speaking at the Financial Executives Institute of the Philippines (FINEX)’s 58th annual conference, Remolona acknowledged the trade-offs the BSP faces amid the broader economic downturn.

“It's far too easy for us to just please the crowd. The crowd seems to want low interest rates, strong peso, and low inflation,” he said.

“But we have to do the right thing for the economy. So we won't be able to make you guys happy all the time. And that's why we have independence.”

The BSP has raised interest rates by a cumulative 75 basis points over the past seven months as inflation reached three-year highs twice, most recently accelerating to 7.2 percent in September. Following the central bank’s latest hike in August, Remolona said the BSP would “tighten as much as necessary” to bring inflation back to its annual 3 percent target.

The August hike was also a preemptive response to risks including the upcoming El Niño season, which is projected to be more severe. On Friday, Remolona said the weather phenomenon remained the biggest near-term headwind.

“In these days, the scenario that we care about the most is El Nino. There's a regular El Nino, a kind of benign El Nino, which is bad news. But there's a bad El Nino, which is really, really bad news,” he said.

“So we have to worry about both scenarios in deciding monetary policy based on that.”

Agriculture Secretary Francisco P. Tiu Laurel Jr. said P45 billion had been set aside for the government’s El Niño response, with P6.2 billion already released to help protect food production and keep prices stable.

Bank of the Philippine Islands lead economist Emilio Neri Jr. said a larger 50-basis-point rate hike at one of the BSP’s two remaining policy meetings this year could not be ruled out. He also identified El Niño as the “most significant risk to the inflation outlook over the next six months.”

Remolona added that BSP surveys indicate inflation remains a key concern among both upper- and lower-income groups. He said the central bank also considers other macroeconomic indicators when making monetary policy decisions.

“[I]n raising interest rates, we don't just look at what's happening to inflation. We also look at other things. We try to be forward-looking,” he said.