By means of Luisa Maria Jacinta C. Jocson, Reporter
INTEREST RATES may be necessary Rates will remain unchanged for longer because the policies of newly-elected US President Donald J. Trump could delay the US Federal Reserve’s interest rate cuts and force other central banks to do the same, analysts said.
“The inflation problem in the US is likely to last a little longer and be persistent, which is why the Fed cannot cut rates as quickly as Trump would like,” Professor Maria of the University of the Philippines (UP) School of Economics. Socorro Gochoco-Bautista said this at a forum on Monday.
“(This) means the rest of us also have to kind of hold the line and keep interest rates high,” she added.
Economies around the world are preparing for possible inflationary pressures from Trump’s proposals on import tariffs, tax cuts and tougher immigration measures. He will assume the presidency on January 20.
“The dominance of the United States and the US dollar may be threatened by increased uncertainty, perceived erosion of the rule of law and the credibility of institutions, an expected wider budget deficit and expected higher inflation that will necessitate higher interest rates,” says Asian Financial Regulatory . Committee chairman Martin Young said this at the same event.
The US central bank began its rate-cutting cycle in September and cut rates by a total of 100 basis points (bps) last year.
The Bangko Sentral ng Pilipinas (BSP), which cut ahead of the Fed in August, delivered a total of 75 basis points of interest rate cuts last year.
The Monetary Board cut rates for three consecutive meetings, bringing the benchmark to 5.75%. BSP Governor Eli M. Remolona Jr. has said that the current policy rate is still in “restrictive territory.”
“As we can see, the dollar is appreciating. Studies have shown that when the US dollar appreciates, it has negative consequences for the rest of the world,” said Ms Gochoco-Bautista.
Ms. Gochoco-Bautista also pointed out the impact of the currency’s depreciation on inflationary pressures and its effects on output growth.
“The dollar is not just used as a means of transaction – it is actually an asset, so in a world where there is so much uncertainty, there is already a natural tendency for countries to want to hold and acquire dollar assets,” she said. .
“That in itself also contributes to the strength of the US dollar, regardless of the fact that interest rates in the US remain high and must somehow maintain the usual interest rate differential to avoid very large depreciations of our currency , which would endanger the economy. the inflation targets,” she added.
The peso closed at P58.70 per dollar on Monday, weakening 34 centavos from Friday’s P58.36.
This was the weakest performance in more than three weeks or since the closing rate of P58.81 per dollar on December 20.
“The US market euphoria following Trump’s election and continued high inflation are likely to keep interest rates high and the US dollar strong. As other currencies weaken, inflationary pressures will increase and hinder economic growth in those countries,” Mr Young said.
Philippine headline inflation averaged 3.2% last year, remaining within the target range of 2-4%.
However, the central bank has warned that risks to the inflation outlook from 2025 to 2026 are still positive.
Meanwhile, Ms. Gochoco-Bautista said Asian countries were individually affected by the first Trump administration.
“Welfare losses in terms of inflation, output growth and tariff revenues were negative in almost all Asian countries except Singapore,” she said.
Trump’s proposals include a 60% tariff on Chinese goods and a 10% universal tariff.
“Using blanket and higher tariffs to contain China could harm the country but would not significantly benefit the US. It will also impact other countries, especially in Asia,” Mr Young said.
He said the proposed tariff on Chinese imports “could disrupt global supply chains and increase U.S. inflation.”
“These tariffs will directly and indirectly affect other Asian countries,” he added.
The United States is the Philippines’ top export destination, typically accounting for about 17% of total exports.
“It will be more difficult to get a unified response from ASEAN (Association of Southeast Asian Nations) on the tariffs because the effects on individual countries also vary widely. There are winners and losers,” Ms. Gochoco-Bautista said.
‘But in general we know that countries have grown because they are open economies, open to trade and investment. And every time you implement policies that restrict trade, it ultimately benefits no one.”