Remolona: BSP ‘considering’ off-cycle rate hike as inflation risks persist

Added: 2026-05-23

[00:00:00]Central Governor Eli Remolona Jr. says April surprising inflation print may have put the monetary board behind the curve in quelling the rise in consumer prices. [music] Here's my exclusive interview with Remolona on day 83 of the Middle East conflict.

[00:00:17]There are many definitions of stagflation as you know, Kathy.

[00:00:20]But we do have low growth and we do have high inflation.

[00:00:25]Uh the BSP is focusing on the inflation part.

[00:00:31]You know, when you have low growth and high inflation, there's a good division of labor.

[00:00:36]Fiscal policy issue focus on growth. It should uh it should uh stimulate growth and then monetary policy should focus on inflation.

[00:00:48]So, that's what we're trying to do.

[00:00:50]Is the fiscal part doing its job as we speak?

[00:00:54]It's trying, I would say. It's trying to do its job. But does the work become more difficult thinking that, as you say, they're trying to do their job putting in the fiscal measures as you do your part uh hiking interest rates to quell inflation?

[00:01:11]It becomes trickier, I would say.

[00:01:14]Uh we're going to we're trying to help as much as we can on the on the fiscal side.

[00:01:23]But uh the focus is still going to be on the inflation.

[00:01:27]The inflation side is a little bit trickier as you know.

[00:01:31]We're facing a a big supply shock.

[00:01:35]Ordinarily, a supply shock you would look through it because it would go away and then uh you're back to where you are. But now this is a big supply shock and it's a persistent supply shock. So, we have to uh we have to react and we have to uh react uh aggressively, I think, in this kind of situation. That's why we uh we raised rates early.

[00:02:04]It didn't seem to be enough, but we were trying to stay ahead of the curve. Are you behind the curve, Governor?

[00:02:12]I there's a risk that we are. I it depends on on whether the supply shock persists.

[00:02:25]Uh what what seems to have surprised us is the effect of that supply shock on other items in the in the price index.

[00:02:38]So, it seems to have already affected uh the price of fertilizer, the price of rice. Those things usually take time, but this time it was uh it was fairly quick.

[00:02:51]When you do have a central bank in the ASEAN, the Bank of Indonesia, as you know, just raised its policy rate by 0.5% exceeding market expectations. In what way do you think does that inform the Banco Central's timing and size of the next rate hike?

[00:03:08]We we look at everybody. We look at the bank what bank Indonesia is doing. It uh uh the world is interconnected, so it affects us.

[00:03:19]But the one that affects us the most in terms of the easing or hiking cycle would the monetary policy of the of the Fed.

[00:03:28]So, we watch that and its implications for the world, the global economy, uh and we take that into account, but uh I would say we take everybody into account.

[00:03:40]Uh some to a greater extent than others. In fact, the spillovers is something you've been concerned about over the past months. Where are you seeing the most worrying spillovers now? Is it on food, transport, wages, or or credit conditions?

[00:03:55]Uh so far it's on transport fares.

[00:03:59]Uh that that that has adjusted very quickly.

[00:04:04]But of course, food is now affected.

[00:04:07]And then fertilizer is a downstream good relative to oil, but it also affects the price of of food.

[00:04:18]So that's Those are the things we're watching. Which leads into consumer spending because that material slowdown in consumer spending was a bit of a surprise in in the first quarter. Uh how is that now feeding into your updated inflation path with a slowdown uh to 4.1% in the first quarter turning out a bit of a surprise?

[00:04:40]Well, we expect consumer spending to come back.

[00:04:44]Uh the slowdown in consumer spending helps lower inflation, but we don't want to lower inflation that way.

[00:04:53]We want consumer spending to resume, and then it's our job to keep inflation low.

[00:05:00]So what now then? Do you think an off-cycle rate hike is looking more likely now and your June 18th policy meeting?

[00:05:06]>> We are I wouldn't say likely. We're considering it.

[00:05:10]I think the next CPI number comes out uh June 9th or something.

[00:05:18]Uh and that's very close to the next scheduled uh the next scheduled policy meeting.

[00:05:27]Uh so I at this point it's a it's a toss-up whether we we do an off-cycle or we just wait for the for the regular meeting, which is not that far away anyway. But what kind of messaging would that give if for instance you do raise by 50 basis points in June 18th? It I think uh whatever we do, uh we want to convey the message that uh we're trying to be uh proactive, we're trying to stay ahead of the curve, and that we're serious about inflation.

[00:06:00]Well, the poorest Filipinos are now feeling the brunt full on, Governor.

[00:06:04]Inflation for the lowest 30% of households spiked to 8 and 1/2% in April. Uh that's much higher than the headline rate. So, how does this sharper pain in the poorest shape your thinking about the pace and size of future rate hikes?

[00:06:19]We we we worry a lot about that. We I think the best way for us to help the poor is to keep inflation low, especially the inflation that they face.

[00:06:34]So, that makes our uh our task we see our task as even more important when that happens. But then you've got the peso, it's continued to weaken to record lows for many days this month. That's a a big factor that's changed since last month. It's already lost uh around 6 to 7% of its value against the dollar since the May conflict in February. How worried are you about the pace at which our local currency's lost in its value in in under 3 months?

[00:07:04]We worry about it uh to the extent that uh it worsens inflation.

[00:07:10]Uh at the same time, a peso that's weaker helps our exports.

[00:07:15]Our exports do need help because uh we're facing a current account deficit.

[00:07:21]So, uh we can't uh we can't allow this kind of deficit to persist forever.

[00:07:29]And a weaker peso helps uh helps narrow the gap.

[00:07:34]But we're not trying to to seek uh a level for the peso. We're we're letting the market do its work.

[00:07:41]What we're doing is trying to maintain orderly markets in the foreign exchange market and we're trying to to prevent wild swings in the exchange rate. So, how much more actively have you been buying pesos selling dollars to temper the pesos fall?

[00:07:59]We're as active as usual. We're as as active as usual. Not Not I don't think we're more active and I don't think we're less active.

[00:08:10]When you have economists at DLSU flagging that the peso may fall further to 63.50 by August and this is something that 63.50 okay.

[00:08:20]Um about a couple of hours ago should we be concerned?

[00:08:26]It depends on how quickly it does that.

[00:08:28]Uh if it does that uh in a in a measured way then that might be okay.

[00:08:38]That might be okay.

[00:08:39]Because along with watching the peso we also watch the current account.

[00:08:45]And we're trying to make sure the the current account deficit remains sustainable.

[00:08:53]We have about a minute governor. I know that you said in just in the April briefing that this is one of those times when you and your team earn your salaries because so much is outside the BSP's control. That we understand but we want to know what keeps you up at night more these days. Is it a policy mistake from acting too late or a policy mistake from acting too forcefully?

[00:09:17]What What we worry about is a policy mistake that leads to a de-anchoring of inflation expectations.

[00:09:27]Which would tend to happen if we act too late.

[00:09:32]So, that's why we're trying to stay ahead of the curve.

[00:09:35]And as a follow-up and to wrap this up, we started with fiscal policy. What concrete assurances or signals from the fiscal side are giving you comfort to to tighten some more despite the headwinds?

[00:09:48]The from the fiscal side uh as you know, the the issues have been about spending, the the effort to discipline spending has led to a a sharp drop in in fiscal uh in the fiscal stimulus. So, we're trying to revive uh fiscal policy so that it uh it lends a hand to the to the government and to the economy.

[00:10:17]And that will also help us.

[00:10:19]It it uh lifts a bit of the burden on monetary policy.

[00:10:25]And that was my exclusive interview with BSP Governor Remolona Jr.