DEVELOPMENTS on inflation rate now carry more weight over the Federal Reserve’s key rate moves in relation to the Bangko Sentral ng Pilipinas’ (BSP) policy rate decisions, BSP governor Felipe Medalla on Monday said.
“We’re driven largely by our own inflation targets,” he said in an interview.
The rate of price increases in the country sustained its deceleration, with the May 2023 level at 6.1 percent after hitting a 14-year high last January.
The average level in the first five months this year stood at 7.5 percent.
Medalla said they project inflation to post within-target monthly rates as early as September this year.
Because of the continued deceleration of domestic inflation rate, BSP’s policy-making Monetary Board (MB) decided to maintain the central bank’s key rates during its meeting last May.
Medalla said that while the Federal Reserve kept its key rates steady last week, this still “sent a signal that they are still quite concerned.”
“That means we cannot rule out future increases,” he said.
Medalla said the BSP need not mirror the Fed but added the pause in the Fed’s rate-hiking cycle is “a good reason to pause” anew for the BSP.
Meanwhile, Medalla said although interest rate differentials between the BSP and the Fed has narrowed, now at 100 basis points from higher levels in the past, this should not be considered by market players to be a factor that weakens the peso.
He cautioned the markets from continuously thinking this way because “this will be a self-fulfilling prophesy.” (PNA)/PN
