Finance Chief Recto Favors Early Interest Rate Cut

MANILA, Philippines - Finance Secretary Ralph Recto has expressed his support for an early interest rate cut by the Bangko Sentral ng Pilipinas (BSP), citing the government's need to raise funds at cheaper costs to pay off maturing debts, including those incurred during the pandemic era.

In an interview with the Inquirer, Recto stated that the market is likely prepared for whether or not a rate cut will occur at the Monetary Board's (MB) policy meeting on August 15. This comes after BSP Governor Eli Remolona Jr. indicated on Tuesday that a rate cut this month is now "slightly less likely" due to higher-than-expected inflation in July, although he did not rule out the possibility of an off-cycle easing.

As a member of the seven-person MB representing President Marcos' Cabinet, Recto believes there is a greater need for a rate reduction "more so now," arguing that the Philippines can afford to ease early amid signals of a September rate cut from the US Federal Reserve. "Regardless of whether the policy rate has been adjusted or not, the market is pricing it in already," the finance chief said.

Data released this week showed that inflation had accelerated to 4.4% in July, faster than the 3.7% recorded in June and the highest in nine months. While the latest reading fell within the BSP's 4 to 4.8% forecast range for July, it marked the first time this year that inflation had exceeded the central bank's 2- to 4-percent target band.

Although Remolona had already anticipated a breach of the inflation target due to base effects, he stated that the July price growth and the impact of data distortions were "slightly worse than expected." This could make it more expensive for the Marcos administration to refinance its old debts, with budget data showing the government would spend P876.7 billion on debt payments next year, including interest expenses for pandemic borrowings that are falling due soon.

Recto noted that even concessional borrowings extended by multilateral agencies like the World Bank have become more costly in the high-interest rate environment. Moving forward, he said the government would continue to tap the commercial debt market at the right time to help pay off its old liabilities. "The idea is to borrow at the cheapest rates. But essentially, they (Bureau of the Treasury) know what they're doing. And they know when to time the market," he added.

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