BSP: Policy responses timely, appropriate
Monetary policy responses to inflation were timely and appropriate amid calls for more forceful policy action, according to Bangko Sentral ng Pilipinas (BSP).
In his speech during the 2018 midyear economic briefing organized by the Institute of Corporate Directors, BSP Governor Nestor Espenilla Jr. said the successive rate hikes in May and June were measured and deliberate responses to the evolving economic environment and dynamic market conditions meant to help anchor inflation expectations and temper second-round effects.
The Monetary Board delivered back-toback rate hikes in May and June to curb rising inflationary pressures. It raised interest rates by 25 basis points for the first time in more than three years on May 10 and was followed by another 25 basis points last June 20.
“We assure that our monetary policy responses to elevated inflation pressures were, and are, timely and appropriate,” he said.
However, inflation leapt to a fresh fiveyear high of 5.2 percent in June from 4.6 percent in May due to rising global oil prices, the impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
This brought the average inflation to 4.3 percent in the first six months, exceeding the two to four percent target set by the central bank.
According to Espenilla, the BSP is committed to ensure that inflation returns to target by 2019, but stands ready to take decisive action in a timely manner to address emerging risks that could threaten the attainment of the two to four percent target.
“While we expect this to return to within target band in 2019, we nevertheless treat the inflation outlook as a concern given elevated inflation expectations and increasing risks of second-round effects from ongoing price pressures,” he said.
Espenilla said inflation forecast over the two-year policy horizon as informed by a wide set of economic data early this year suggested no adjustment in policy rate was warranted at that time.
He added the uptick in prices was driven mainly by supply-side factors that could not be influenced by policy rate hikes, while the forecast continued to show inflation upticks as transitory and moderating within the two to four percent target in 2019.
Recognizing increasing volatilities in world oil prices and global interest rates, Espenilla said the BSP responded to changing monetary environment conditions by adjusting auction volumes and allowing the term deposit auction facility (TDF) rates to rise, creating effective tightening in the market.
“There were material changes towards the end of the first quarter and the beginning of second quarter of 2018,” Espenilla said.
According to Espenilla, the attractiveness of the US economy, highlighted by both its fiscal and monetary policy adjustments, including rising interest rates caused a migration of portfolio investments.