Philippines may pause rate rises if inflation slows

Reuters/Dondi Tawatao

The Philippine central bank may consider pausing its monetary tightening next month if April inflation does not accelerate, the bank’s governor said.

Bangko Sentral ng Pilipinas governor Felipe Medalla said in a telephone message to Reuters that a pause in interest rate increases was possible “if the April CPI (consumer price index) is not higher than the March CPI”.

Medalla said a “zero or negative month-on-month inflation” may also support the case for a rate hike pause.

Philippine headline inflation eased for a second consecutive month in March to 7.6 percent from 8.6 percent in February but it remained above the central bank’s two to four percent target for the year.

To tackle inflation, the BSP has raised its benchmark interest rate by 425 basis points since May last year to 6.25 percent. Medalla has said future policy moves would be data-dependent. It next meets on May 18 to review policy.  

However, confusing the picture, core inflation accelerated eight percent in March from February’s 7.8 percent, the fastest pace since 1999.

“While inflation is beginning to slow down, it remains the most pressing issue that the government must monitor and urgently address,” economic planning secretary Arsenio Baliscan said in a statement.

Nicholas Mapa, an economist at ING bank, said a sustained downtrend in inflation could make the BSP consider hitting the pause button on its most aggressive interest rate-hiking cycle for years.

“Today’s inflation reading could be one additional data point that could convince Governor Medalla that inflation is finally moderating,” Mapa told Reuters.

“We expect inflation to moderate further in April which could open up the door for a BSP pause at the May meeting.”