Espenilla: BSP ‘ready’ for ‘timely’ adjustments

Monetary authorities “stand ready” to adjust policy, Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr. said on Tuesday, to ensure that inflation stays within target.

“The BSP remains strongly committed to maintaining a favorable inflation environment and we stand ready to timely adjust our policy settings…,: Espenilla said during a briefing before prospective Japanese investors in Tokyo.

The BSP chief, who is part of a visiting Philippine delegation, noted that monetary authorities expected inflation to breach the 2.0-4.0 percent target, hitting 4.6 percent in 2018, before moderating to 3.4 percent next year.

The 4.1-percent running average for 2018 as of end-May, he added, was driven largely by supply-side factors particularly significantly higher global oil prices, food supply disruptions, and excise tax hikes implemented at the start of the year.

“However, there are definite signs that inflation is slowing down and may be close to peak. It is possible we will revise downwards with more data becoming available,” Espenilla said.

“We have an opportunity to look again at the issue tomorrow at our policy meeting,” he added, referring to a June 20 meeting of BSP’s policymaking Monetary Board.

Rising inflation, along with strong economic growth, prompted the Monetary Board in May to raise key interest rates for the first time in over three years.

The 25-basis point adjustment took the BSP’s overnight borrowing, lending and deposit rates to 3.25 percent, 3.75 percent and 3 percent, respectively.

Singapore-based bank DBS said the MB would “probably hike again” on the back of the peso’s depreciation, high inflation and wider budget and current account deficits.

“Month to date, the Philippine peso has weakened by 1.8 percent as CPI (consumer price index) accelerated and stayed above its target range (2-4 percent) for the third straight month. This comes on top of deficits in the financial and current accounts in the first quarter,” DBS said in a report.

“Without a clear hawkish stance, concerns of overheating have not gone away, and have kept the door open for more monetary tightening ahead,” it added.

Inflation hit a fresh five-year high of 4.6 percent in May while the peso has been trading at its weakest in 12 years at above the P53:$1 level.

Also expected to figure in the MB meeting is the US Federal Reserve’s decision to raise interest rates anew and signal more aggressive tightening for this year and the next.

In an earlier report, banking giant HSBC said: “Amidst an already-strong US dollar environment, we believe the Fed’s more hawkish stance on 13 June places the onus on the BSP (and many other emerging market central banks) to follow suit”.

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