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By Luisa Maria Jacinta C. <\/b>Jocson, <\/b><\/span>Senior Journalist<\/i><\/p>\n THE BANGKO SENTRAL ng <\/span>Pilipinas (BSP) indicated that it is considering transitioning to a point target for inflation, moving away from the current 2-4% target range, stated its top official.<\/p>\n \u201cWe\u2019re seriously contemplating just having a point, a target level,\u201d BSP Governor Eli M. Remolona, Jr. remarked to reporters during a press gathering on Friday.<\/span><\/p>\n \u201cA single figure, indeed. In the US, it stands at just 2%. In numerous other central banks, it\u2019s merely one figure,\u201d he further stated.<\/p>\n In December, the Development Budget Coordination Committee, in consultation with the BSP, established the inflation target at 2-4% from this year until 2028.<\/span><\/p>\n A medium-term inflation target aids in \u201creinforcing the forward-looking stance towards monetary policy design aimed at anchoring inflation expectations to the target,\u201d the central bank previously mentioned.<\/p>\n Mr. Remolona noted that the inflation target they are considering might be slightly lower than the 3% midpoint of its existing target range.<\/p>\n \u201cPerhaps 2% is sufficient. We\u2019re still analyzing the data,\u201d he added.<\/p>\n However, Mr. Remolona indicated that the target cannot be excessively low as it impacts economic output.<\/span><\/p>\n \u201cThe rationale for not setting it to zero is that in a growing economy, it\u2019s essential to allow relative prices to fluctuate. Allowing relative prices to adjust usually leads to downward stickiness,\u201d he stated.<\/p>\n \u201cPermitting these adjustments implies some inflation. A target that is too low restricts the economy,\u201d he continued.<\/p>\n Historically, the central bank relied on operating targets within a framework for monetary aggregates for its policy choices, according to a report by the International Monetary Fund (IMF).<\/p>\n The BSP adopted a modified targeting framework in 1995 after inflation surged into double-digit figures due to a rice supply crisis. This method prioritized price stability over monetary aggregate ceilings.<\/p>\n In 2002, the central bank officially transitioned to inflation targeting.<\/span><\/p>\n Between 2012 and 2014, the inflation target range was set at 4% \u00b1 1.0 percentage point. In 2015, the BSP\u2019s inflation target was defined at 3% \u00b1 1.0 percentage point, continuing up until 2022, although the central bank started employing the alternative 2-4% band around this period.<\/span><\/p>\n The BSP is currently collaborating with the IMF to analyze the transition to a point target for inflation.<\/p>\n \u201cThere won\u2019t be an update in the near future. It was something we requested the IMF to investigate. They won\u2019t provide an immediate response, as they require time. Nonetheless, I\u2019m comfortable <\/span>with our range between 2% and 4%.\u201d<\/span><\/p>\n He added that the central bank might shift to the point target within a year at the latest.<\/p>\n RRR ADJUSTMENTS \u201cPerhaps (RRR cuts) for next year. We aim to enhance the yield curve reliability, which necessitates better liquidity management within the system, with the reserve requirement being a component of that,\u201d Mr. Remolona stated.<\/span><\/p>\n \u201cThus far, we\u2019ve been managing liquidity by issuing our own BSP bills. We\u2019ve been releasing substantial quantities of BSP bills to absorb the liquidity within the system.\u201d<\/span><\/p>\n As of March, the RRR for universal and commercial banks, along with nonbank financial institutions with quasi-banking functions, was lowered by 200 basis points (bps) to 5% from the existing 7%.<\/span><\/p>\n The RRR for digital banks also decreased by 150 bps to 2.5%, while thrift institutions saw a reduction of 100 bps to 0%.<\/p>\n Rural and cooperative banks have maintained a zero RRR since October, which was the last time the BSP adjusted reserve requirements.<\/p>\n \u201cReducing the reserve requirement expands liquidity in the system. Hence, we are working to manage that,\u201d Mr. Remolona stated.<\/p>\n \u201cWe might initiate the issuance of BSP bills. An alternative would be selling the Treasury securities we possess, which would similarly affect liquidity.\u201d<\/p>\n Previous data from the central bank indicated that around 50% of its market operations are conducted through BSP bills.<\/p>\n \u2018DE-DOLLARIZATION\u2019 This encompasses discussions of \u201cde-dollarization\u201d or the shift away from the US dollar influenced by policy uncertainties from President Donald J. Trump\u2019s administration.<\/p>\n \u201cAs you are aware, it has been a safe-haven currency for an extended period. Whenever global tensions arise, the dollar strengthens. Funds tend to flow into the dollar,\u201d he noted.<\/p>\n \u201cTheoretically, the safe-haven advantage of the dollar may diminish over time. However, it\u2019s a gradual transition. It doesn\u2019t occur instantaneously,\u201d he added.<\/p>\n The dollar index, measuring the greenback against a set of currencies, fell to a three-week low, according to reports from Reuters.<\/p>\n Over the week, the dollar dropped 1.9%, poised for its most considerable weekly percentage decline since early April.<\/p>\n This followed Mr. Trump\u2019s latest trade threats, suggesting 50% tariffs on European Union imports starting June 1 and contemplating a 25% tariff on any Apple iPhones manufactured outside the US.<\/p>\n Mr. Remolona observed that the United Kingdom\u2019s primary invoicing currency was once the US dollar and their trade was conducted in dollars as well.<\/p>\n \u201cThen Brexit occurred, and their invoicing currency transitioned to the euro. Hence, the dollar’s supremacy is not eternal. It can be diminished,\u201d he remarked.<\/p>\n Mr. Remolona also pointed out the difficulty of establishing an \u201cinternational currency.\u201d<\/p>\n
\n<\/b>Meanwhile, the BSP leader stated that reserve requirement ratio (RRR) cuts are improbable for the remainder of the year.<\/p>\n
\n<\/b>Meanwhile, Mr. Remolona shared that moving away from the dollar as the world\u2019s reserve currency would be a prolonged and gradual endeavor.<\/p>\n