Philippine Daily Inquirer

BSP hints at more ag­gres­sive ac­tion against in­fla­tion surge

Cen­tral bank to re­view, up­date its si­t­u­a­tional as­sess­ment and fore­cast in­fla­tion path

- By Daxim L. Lu­cas @daxINQ

A chas­tened cen­tral bank yes­ter­day hinted at a more ag­gres­sive ac­tion to con­tain the ac­cel­er­at­ing pace of do­mes­tic price in­creases af­ter the gov­ern­ment an­nounced yes­ter­day that the June in­fla­tion rate rose be­yond even the most pes­simistic of fore­casts.

In a mes­sage to re­porters, Bangko Sen­tral ng Pilip­inas Gov­er­nor Nestor Espe­nilla Jr. de- scribed the higher-than-ex­pected con­sumer price in­dex for last month—which at 5.2 per­cent was a fresh high for at least the last five years—as a “set­back.”

“The BSP reaf­firms its strong com­mit­ment to en­sure that in­fla­tion re­turns to within the 2-4 per­cent tar­get range as soon as pos­si­ble,” he said, adding that the mon­e­tary author­ity would “re­view and up­date its si­t­u­a­tional as­sess­ment and fore­cast in­fla­tion path.”

Us­ing the most force­ful an­ti­in­fla­tion lan­guage to date, Espe­nilla said the out­come of the re­view “will shape the strength and timing of [BSP’s] next mon­e­tary pol­icy re­sponse to firmly an­chor in­fla­tion ex­pec­ta­tions.”

The BSP has, so far, hiked its key in­ter­est rate twice for a to­tal of 50 ba­sis points over the last two months in what many economists and bankers be­lieve is a de­layed re­sponse to lo­cal price in­creases that started in Jan­uary of this year. Its overnight bor­row­ing rate now stands at 3.5 per­cent, which is the ba­sis on which fi­nan­cial in­sti­tu­tions price their own loans to cor­po­rate and re­tail bor­row­ers.

BSP of­fi­cials ini­tially said the in­fla­tion rate would nor­mal­ize by next year with­out need of any mon­e­tary pol­icy in­ter­ven­tion, but made a U-turn and started rais­ing in­ter­est rates in May af­ter in­di­ca­tions emerged that in­fla­tion would be worse than an­tic­i­pated.

At 5.2 per­cent, the June in­fla­tion rate is the high­est in at least five years which is the ex­tent of data avail­able un­der the gov­ern­ment’s re­vised 2012 con­sumer price in­dex bas­ket of goods. The lat­est in­fla­tion num­ber brings the av­er­age for the first half of the year to 4.3 per­cent.

Last week, the BSP’s De­part­ment of Eco­nomic Re­search said it ex­pected the in­fla­tion rate to rise to as high as only 5.1 per­cent.

The unit—whose out­put guides the cen­tral bank’s Mon­e­tary Board in set­ting in­ter­est rate pol­icy—said price hikes in ba­sic goods would have been mit­i­gated by re­duc­tions in other sec­tors.

“Up­ward price pres­sures from rice and other agri­cul­tural com­modi­ties due to weather-re­lated dis­rup­tions as well as the in­crease in liq­ue­fied pe­tro­leum gas prices could be partly tem­pered by the re­duc­tion in fuel prices and elec­tric­ity rates in Mer­alco-ser­viced ar­eas,” it said.

BSP Deputy Gov­er­nor Diwa Guini­gundo said mon­e­tary plan­ners ex­pected the pace of price in­creases for the rest of 2018 to ease and, as such, low­ered the cen­tral bank’s in­fla­tion fore­cast slightly from 4.6 per­cent down to 4.5 per­cent for this year.

A down­ward re­vi­sion of the same mag­ni­tude was made for 2019’s in­fla­tion fore­cast, from 3.4 per­cent down to 3.3 per­cent.

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