Philippine central bank Governor Felipe Medalla signaled an extended pause on interest rates, as easing inflation reduces the odds for more hikes and the economy doesn鈥檛 yet need cuts to support expansion.
鈥淩ight now the economy is strong,鈥 Mr. Medalla said in an interview with Bloomberg Television鈥檚 Haidi Stroud-Watts and Shery Ahn on Friday. 鈥淭hat鈥檚 why pressure on us to cut is not so high.鈥
He also said the central bank is watchful that peso doesn鈥檛 depreciate too much as it could become 鈥渢he new anchor of inflationary expectations.鈥 The local currency is poised to gain for a second day, climbing as much as 0.4% against the dollar, the best performance in Asia so far on Friday.
His comments come after the Bangko Sentral ng Pilipinas鈥 (BSP) decision Thursday to halt its fastest monetary tightening in two decades. Cooling inflation and an uncertain economic outlook are giving central banks in the region reason to be cautious about further tightening.
The BSP has room to consider a rate cut once the US Federal Reserve embarks on a monetary policy easing, Mr. Medalla said, while adding that he doesn鈥檛 expect that to happen this year.
The markets are probably too optimistic about a Fed rate cut and underestimating the resolve of the US central bank to slow inflation, he said.
鈥淚f I were in their shoes, I will be reluctant to cut,鈥 he said, when asked when does he see the Fed easing. The BSP wants to make sure it鈥檚 able to deliver headline inflation below 4% as early as possible.
Interest rate differential with US is also one factor that BSP will consider, Mr. Medalla says, adding that the market thinks this is on the narrow side.
On foreign exchange, Mr. Medalla said the level of intervention right now is 鈥渕uch, much less鈥 than August last year
Mr. Medalla said he hasn鈥檛 heard anything about his reappointment, while adding that 鈥渋t鈥檚 a pleasure to serve.” – Bloomberg
