BSP chief Medalla signals long pause on rates

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’t yet need cuts to support expansion.

“Right now the economy is strong,” Mr. Medalla said in an interview with Bloomberg Television’s Haidi Stroud-Watts and Shery Ahn on Friday. “That’s why pressure on us to cut is not so high.”

He also said the central bank is watchful that peso doesn’t depreciate too much as it could become “the new anchor of inflationary expectations.” 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’ (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’t 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.

“If I were in their shoes, I will be reluctant to cut,” he said, when asked when does he see the Fed easing. The BSP wants to make sure it’s 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 “much, much less” than August last year

Mr. Medalla said he hasn’t heard anything about his reappointment, while adding that “it’s a pleasure to serve.” – Bloomberg

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