IMF Advises Philippines to Wait on Interest Rate Reduction
Manila – The International Monetary Fund (IMF) has recommended that the Philippine financial market should exercise caution before pushing for interest rate reductions. According to Ragnar Gudmundsson, the IMF’s resident representative to the Philippines, factors placing pressure on consumer prices are still persistent. Gudmundsson made these remarks during an economic briefing hosted by the Bangko Sentral ng Pilipinas (BSP) following the President’s State of the Nation Address.
The Monetary Board, which determines the benchmark interest rate, has kept the overnight borrowing rate at 6.25 percent for two consecutive policy meetings. Market analysts are now speculating on when the rates will be reduced to stimulate more consumer spending.
Gudmundsson praised the BSP for its proactive approach in addressing inflationary pressures by raising the policy rate by 425 basis points. However, he also noted that core inflation, which excludes food and energy prices, remains high at 7.4 percent in June, while headline inflation stood at 5.4 percent.
The IMF representative stated, “We believe that maintaining a ‘higher for longer’ stance in the near term is still appropriate to anchor inflation expectations and ensure that inflation returns to the BSP’s target range of 2 percent to 4 percent.” He added that this stance is crucial not only from a domestic perspective but also to mitigate potential capital outflows and currency depreciation risks.
Gudmundsson emphasized the need to closely monitor possible upside risks to inflation, such as El Niño-related effects, wage increases due to tight labor conditions, and commodity price volatility in the international market.
Goldman Sachs, in a commentary, highlighted that core inflation has been more persistent than headline inflation across the region, although it is declining in most cases.
