KEY interest rates will probably go no higher but monetary authorities are also not likely to start easing anytime soon, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said on Wednesday.
"I think it's unlikely that we will tighten some more," he told reporters in a briefing. "But we'll see what the data says."
Remolona previously said that given upside risks to inflation and still-strong economic growth, further monetary tightening could not be ruled out.
The central bank's policy rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of hike beginning May 2022 as inflation surged in the wake of Russia's invasion of Ukraine.
Consumer price growth has since returned to the 2.0- to 4.0-percent target, and the policymaking Monetary Board opted to keep interest rates unchanged during its last three meetings.
But with inflation having picked up to 3.4 percent last month from 2.8 percent in January, Remolona said it remained uncertain as to when policy settings would be loosened.
He added that the central bank was "on the edge, so I can't say that we're gonna ease soon."
"The models and the data seem to suggest that it's still too soon to declare victory," the BSP chief continued.
"We seem to be on our way, but there's not enough data to assure us that we will settle comfortably within our target range of between 2.0 [and] 4.0 percent."
High rice prices were primarily to blame for February's inflation uptick, and Remolona acknowledged that the commodity had an outsized effect on the BSP's inflation outlook.
"For now, we seem to be able to manage expectations, but rice is a big factor in that. Locally, it's rice, globally, it's oil," he added.
For the moment, the BSP still expects inflation to average within target at 3.9 percent this year.
Emilio Neri, senior economist at Bank of the Philippine Islands, said that for the central bank, maintaining a hawkish tone was needed to temper inflation expectations.
"Inflation may remain within the target of the BSP in March, but it may accelerate and breach 4.0 percent in April due to base effects and El Niño," he added.
"However, this breach in the target might be temporary and inflation is expected to ease in the second half of the year, assuming the El Niño ends by then and the impact is not more severe than expected."
The BSP is likely to remain cautious and keep interest rates unchanged in the first half, Neri said.
HSBC Global Research economist Aris Dacanay also expects monthly inflation to keep rising, possibly breaching the target "sometime in the second quarter due to base effects alone."
February's result, he added, "poses an upside risk to our baseline forecast of the BSP beginning its easing cycle at the same time as the Fed (US Federal Reserve) in June."
"If inflation surprises to the upside again or if risks to inflation materialize during the sensitive period of the second quarter of 2024, then there is a risk that the BSP will instead cut after the Fed, keeping the BSP rate at 6.50 percent for a longer period than we expect."
Miguel Chanco, Pantheon Macroeconomics economist, also expects headline inflation to rise further in March to 3.9 percent. The BSP, however, is still likely to cut rates by a total of 100 basis points (bps) this year.
"But the first 25-bp reduction we expect is now unlikely to come until June, a month later than our previous call," he said.
Chinabank Research, for its part, expects monthly inflation to top 4.0 percent from April to July before returning to target for the rest of the year.
"Average headline inflation for this year will likely settle near the higher end of the BSP's target," it said. "Hence, the BSP will likely stand pat and maintain its hawkish stance in its succeeding meetings."
"We think that potential rate cuts may occur in the last quarter of the year when inflation is well within target."
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