The Bangko Sentral ng Pilipinas (BSP) remains cautious in hiking interest rates if ever it decides to do so next week, as the economy is nearing its full capacity.

In a briefing, BSP Governor Eli Remolona maintained that the Monetary Board would consider all data points in its next policy meeting on Aug. 17.

Remolona did not dismiss the possibility of tightening monetary policy yet again amid rising supply-side concerns, even as inflation slipped to a 16-month low in July.

When asked if the country can handle another rate hike, he said the economy is close to its full capacity at this point.

'If we are going to hike, that means we have to be very careful not to hike too much. Maybe just a little, if ever,' Remolona said.

'We analyze the data and what it says about how far the tightening has worked through the economy or how far it has weakened the demand in the economy,' he said.

The BSP chief emphasized that all would be considered before Aug. 17, including the latest decision of the US Federal Reserve.

The BSP tightened monetary policy aggressively and jacked up rates by 425 basis points over a one-year period to settle at 6.25 percent.

The US Fed, on the other hand, lifted rates by 25 basis points and remains open for another hike in September.

The BSP has been on pause for two straight meetings amid indications that its previous monetary tightening is creating its impact on the economy.

As an inflation-targeting central bank, the BSP is firm in ensuring that inflation will return to the target range of two to four percent by yearend.

'We want to stick the landing. We want to get to the target range without overshooting it too much,' Remolona said.

'I think we will overshoot a little bit but not to the point of tumbling from getting to the target range. We think we can set that comfortably within the target,' he said.

The BSP said it is on track to reach the target by the fourth quarter, before settling below the lower limit by the first quarter of 2024.

 

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