The International Monetary Fund (IMF) advises exercising caution when it comes to reducing interest rates in the Philippines. According to Ragnar Gudmundsson, the IMF’s resident representative to the Philippines, inflationary pressures are still a concern, and it would be wise for the financial market to wait a few more months before pushing for rate reductions. Gudmundsson commended the proactive steps taken by the Bangko Sentral ng Pilipinas (BSP) to address inflation last year, including raising the policy rate. However, he pointed out that core inflation in the country remains high, indicating that maintaining the current “higher for longer” stance is essential to anchor inflation expectations and protect against potential capital outflows and currency depreciation. In addition, Gudmundsson emphasized the need to monitor potential upside risks to inflation, such as El Niño effects, wage increases in a tight labor market, and volatility in commodity prices. Goldman Sachs also acknowledged that core inflation remains persistent in the region. Overall, it is crucial to be mindful of these factors when considering changes to interest rates in the Philippines.
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