Philippine Central Banker Eyes More Rate Cuts, Watching Peso

(Bloomberg) -- Philippine Central Bank Governor Eli Remolona said “a few more rate cuts” are on the table in the absence of any economic surprises, but will remain on guard against excessive currency movements.

“We see ourselves as still on the easing cycle,” Remolona said in a forum on Tuesday. “It’s a balancing act between inflation and growth.” 

The Bangko Sentral ng Pilipinas in February kept its benchmark interest rate unchanged at 5.75%, bucking expectations of a cut following lower-than-target economic growth. Policymakers, however, announced another hefty reduction in banks’ reserve requirement ratio that takes effect later this month.

Remolona said the monetary authority may continue with its pace of cutting interest rates by “baby steps” or by 25bps at a time if inflation is on track. A 50-basis point cut may be warranted in case of an unlikely “hard landing,” he said. 

Inflation slowed sharply to 2.1% in February, well below the central bank’s forecast range. The next data is due on April 4.

“We look at all the other numbers and we decide on April 10 on whether to ease further or not to ease,” he said. “We are recalibrating our models to take account of uncertainty.”

While the central bank’s measures of policy uncertainty have spiked, those by the market haven’t, Remolona said, citing the nation’s credit default swap spreads, which haven’t widened much. 

Monetary authorities are monitoring the peso’s exchange rate against the dollar because of its impact on inflation, the central bank chief said. 

“We monitor the exchange rate but not because we want the peso to stay low or stay high. We monitor it because of the possible inflation consequences,” Remolona said.

The Philippine peso rose as much as 0.4% to 57.200 against the dollar on Tuesday. In December, it depreciated to a record low of 59 to the greenback, a level that has served as a key support since 2022.

Meanwhile, Remolona said banks’ reserve requirement ratio at 5% remains high, suggesting that the central bank is poised to implement further cuts. 

(Updates with more comments throughout.)

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