Philippines: ‘Very dangerous’ to cut faster than Fed

CUTTING interest rates faster than the US Federal Reserve (Fed) will be “very dangerous,” Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said on Wednesday.

Speaking to reporters at the sidelines of a central bank event, Medalla noted that while monthly Philippine inflation could finally fall within target this year, price growth in the US could stay “sticky,” prompting any easing by the Fed to be slow.

“It’s very dangerous for the Philippine central bank to cut faster than the US,” he said.

US inflation moderated to 5.0 percent in March from 6.0 percent in February but was still substantially higher than the Fed’s 2.0-percent target. The US central bank is expected to raise its policy rate one more time next week before finally calling pause on a tightening spree that began last year as consumer price growth surged.

In the Philippines, inflation slowed for a second straight month in March to 7.6 after having hit a 14-year high of 8.7 percent in January. Medalla has raised the possibility of a pause in May should inflation fall further this month.

Official data for April is scheduled to be released Friday next week, May 5. The BSP will be issuing its forecast for the month this Friday, April 28.

Medalla reiterated projections that inflation would finally slip below the 2.0- to 4.0-percent target before the year ends. The 2023 average, however, is still expected to top the range.

The BSP’s policymaking Monetary Board currently expects inflation to average 6.0 percent this year. This could be revised when it next meets to discuss policy on May 18.

On Monday, the interagency Development Budget Coordinating Committee, of which Medalla is a member, revised its 2023 inflation assumption to 5.0 to 7.0 percent from the 2.5 to 4.5 percent announced last December.

Asked if the board would match whatever the Fed decides during its May 2-3 meeting, Medalla replied that “even if they raise theirs we may not have to raise ours.”

“Now, will that cause an overly weak peso? Maybe not because the markets know we have more than enough reserves,” he added.

The Fed’s aggressive tightening led to the peso hitting a record low of P59 to the dollar in October last year. The currency has since regained ground although it weakened by 8 centavos to close at P55.62:$1 on Wednesday on renewed fears over the state of the US banking sector.