INFLATION will likely rise further this month but stay within target, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said on Wednesday.

"It will be close to 4.0 percent. I think 3.9 percent, but we'll see," Remolona told reporters.

Consumer price growth snapped a four-month downtrend in February, rising to 3.4 percent from 2.8 percent at the start of the year.

Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. PHOTO FROM BSP

The rate remains within the BSP's 2.0- to 4.0-percent target, a range inflation returned to in December after it started surging in March 2022.

The central bank has warned that inflation might again breach 4.0 percent in the second quarter of this year, primarily due to the adverse effects of the El Niño weather pattern on food prices before returning to target in the last six months of 2024.

Remolona's inflation estimate — which came ahead of the March 27 release of the BSP's official forecast — means that monetary authorities will likely keep key interest rates unchanged when they meet next month.

The April 5 Monetary Board meeting will come ahead of the official March inflation data, scheduled to be issued on April 6.

"As usual, we will look at the data," Remolona said.

"But we are improving our models ... I think we will act with more confidence than before," he added.

The BSP's benchmark rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of rate hikes beginning May 2022.

Analysts expect the Monetary Board to only begin easing policy once inflation settles firmly within target, with the first-rate cut likely in June.

The central bank is also expected not to move until the US Federal Reserve starts cutting rates, but Remolona said "we don't have to wait for them."

"We watch them very closely. And we read the statements. We read what the different members of the [policymaking] FOMC (Federal Open Market Committee) say ... that's data for us," Remolona said.

"I think we don't have to put a lot of weight on what they do. Unless the market goes crazy. Unless they overreact. And the peso somehow weakens sharply. Then we'll have to react more decisively. But we don't expect that."

Remolona spoke as the US central bank was holding its latest policy meeting, the results of which were scheduled to be announced Wednesday afternoon, US time.

The FOMC is expected to again keep rates on hold and also provide clues as to when it will start easing. The current view is that the first of three cuts will be announced in June.

Remolona, meanwhile, said the BSP was still open to lowering bank reserve requirements further, but "we have to time it right."

Cuts were announced last year, which freed up more money for lending, and the BSP chief said they particularly want to review the impact on the financial system.

Additional liquidity can be inflationary and Remolona earlier this year said that reserve requirements would only be lowered after rate cuts start.

The BSP, he said on Wednesday, now wants to see how "exactly what the impact of reserve requirements are on financial intermediation."

"We traditionally looked at reserve requirements as a way to control money supply, and that was the thinking in the 1960s, I think. That thinking has gone away," Remolona added.

"Now reserve requirements are seen as a distortion of financial intermediation. They drive a wedge between deposit rates and lending rates."

Remolona said that regulations were affecting intermediation — the facilitation of transactions between lenders and borrowers — to the point that "there is a gray market where conglomerates lend to each other."

"[We want to bring that activity back into the formal banking system, but that needs more research," he added.