Philippine central bank Governor Eli Remolona signaled further monetary policy tightening is still on the table for the economy, and said it’s “premature” to talk about cutting the key interest rate.

Bangko Sentral ng Pilipinas remains “more on the tightening side” as it monitors upside risks to inflation such as higher wages, the impact of El Nino to food supply and any sharp drop in the peso that could stoke imported prices, Remolona said in an interview last week.

He was in Canada for a Philippine economic briefing.

“For now, we’re contemplating whether to hike or not to hike,” he told Bloomberg Television’s Kathleen Hays in Toronto, his first interview since taking office this month. “We’re not thinking about whether to cut or not to cut.”

Remolona, 70, an economist who had worked at the Bank for International Settlements and the Federal Reserve Bank of New York, must bring inflation back to within the BSP’s 2%-4% target while ensuring that borrowing costs at a 16-year high won’t tip the Philippines into a recession.

His predecessor, Felipe Medalla, oversaw the central bank’s most aggressive tightening in two decades to curb the fastest inflation since 2008 and prevent the currency from slumping to the 60-to-the-dollar level.

The good news: price gains have slowed in the past five months and are on course to return to within the target band next quarter. Economic growth stayed above 6% in the first quarter, faster than most neighbors that had tightened much less.

Inflation may cool below 2% in 2024, Remolona said.

During his first weeks in office, Remolona described the BSP as “structurally hawkish” and emphasized its inflation-targeting role.

The governor expects the Fed to pause for a while after US inflation cooled. He signaled the BSP’s willingness to act preemptively should higher US rates significantly weaken the peso, like last year. So far, the local currency is the second-best performer in the region in 2023.

He’s also mindful that tighter financial conditions could spark a global recession. While a BSP rate cut “won’t happen very soon” and is more likely once inflation is already “well into” the target, Remolona said he’s open to easing should he see the need to shield the Southeast Asian economy.

The governor said he wants to further lower banks’ reserve requirement ratio from the current 9.5% of deposits although this shouldn’t coincide with any rate tightening. The elevated triple-R, as the rate is known, “is essentially a distortion on financial intermediation,” said Remolona, and reducing it, along with improving digitalization, would make the banking system more efficient.

Taking off from his predecessor’s move to enhance the central bank’s market operations and improve monetary policy transmission, Remolona said the BSP is in discussions with banks and their traders to establish a “more reliable yield curve.”

“Right now there’s a workable yield curve, but we want it to be a yield curve that represents liquidity at different maturities,” he said. “We’re talking to the banks about market making. Can they make sure there’s liquidity around, say the two-year and around the five-years?”

The BSP is also watchful of rising corporate debts. “They’re still not at dangerous levels but as we go into a global economy that is seeing tighter financial conditions, this could make things bad for us,” the governor said. “We have to watch out.”

--With assistance from Andy Clarke, Katria Alampay, Ditas Lopez, Cecilia Yap and Clarissa Batino.