Remolona targets faster inflation spillovers from oil shocks
Bangko Sentral ng Pilipinas Governor Eli M Remolona said monetary policy is targeting second-round price effects from global supply shocks. He also warned that AI firms' bond borrowing is raising financing costs and crowding out investment.
Price spillovers arrive sooner
Remolona said inflation had reached 7.2 percent against the Bangko Sentral ng Pilipinas (BSP) target of 3.0 percent.
Conflict involving Iran at the end of February raised oil, fertilizer and food prices.
Second-round effects arrived within two months, versus six months after the 2022 invasion of Ukraine, as households and firms remembered earlier price increases.
He defended higher interest rates as the most effective inflation tool, citing the BSP's 88-equation model.
External forecasters put headline inflation at 5.4 percent one year ahead, 4.0 percent after 24 months and subsequently 3.6 percent.
Core forecasts were 4.0, 3.4 and 3.0 percent over one, two and three years.
He said the target accommodates growth and relative-price adjustment; many developed economies target 2.0 percent.
Buffers before bank losses
Drawing on the July 1997 currency crisis, Remolona said supervision seeks vulnerabilities before confidence turns to fear.
Banks must provision for expected losses rather than wait for losses to occur.
Philippine banks had capital adequacy of 15.6 percent against the 10.0 percent global standard he cited.
Liquidity coverage was 155 percent against a simulated 30-day deposit run.
The BSP monitors systemic banks more closely and prepares emergency liquidity, takeovers or resolution to limit disruption from failures.
AI borrowing reaches beyond technology
Remolona questioned whether AI returns justify investment, citing NVIDIA's 400 percent gain since 2024 against the Nasdaq's 70 percent dot-com decline.
He said AI bond issuance raises Philippine yields and crowds out investment.
The BSP can limit bank overexposure and resolve failures in an orderly way.