BSP: Monetary policy ‘timely and appropriate’
Monetary policy in the Philippines remains “timely and appropriate”, the country’s central bank chief stressed on Tuesday amid observations that policy rate hikes ordered in May and June were not enough to address above-target inflation.
“We assure that our monetary policy responses to elevated inflation pressures were, and are, timely and appropriate,” Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr. said in a speech before the Institute of Corporate Directors.
Consumer price growth first breached the BSP’s 2.0-4.0 percent target in March and a continued rise prompted the central bank’s policymaking Monetary Board to order 25-basis point (bps) adjustments in May and June.
The announcement earlier this month that inflation had hit 5.2 percent in June — a development Espenilla has described as a “setback” — fueled talk that monetary authorities would be forced to act anew, perhaps as early as August, given the view that price hikes had yet to hit their year high.
Economist Bernardo Villegas on Monday said the Philippines was “behind the curve” with regard to interest rate adjustments and forecast a 50-bps hike in August or September and another early next year.
Fitch unit BMI Research has said that the two policy rate hikes would not be enough to contain inflation and support the peso. It predicted another 25-bps increase before the end of the year. Analysts from ING Bank Manila, ANZ Research and IHS Markit all expect another adjustment to be announced in August.
The last two 25-bps adjustments brought the Bangko Sentral’s overnight borrowing, lending and deposit rates to 3.5 percent, 4.0 percent and 3.0 percent, respectively.
‘Measured and deliberate’
In his speech, Espenilla pointed out that the “two 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, firmly signaling our commitment to ensuring price stability.”
He recalled that monetary authorities had noted and acted on material changes in both the external and domestic environments.
“On the global front, the attractiveness of the US economy was highlighted by both its fiscal and monetary policy adjustments, including rising interest rates,” he said.
This caused a migration of portfolio investments from the region — seen in increased volatility in the stock markets of the Philippines, Indonesia, Malaysia, Singapore and Thailand.
Portfolio investment outflows also contributed to elevated exchange rate pressures, Espenilla added.
“In addition, the continued rise in global oil prices and the price effect brought about by scarcity of the NFA (National Food Authority) rice provided key impetus for higher levels of inflation.”
Above all this, Espenilla stressed that the BSP remained strongly committed to its primary mandate of price stability amid global and domestic headwinds.
“We reaffirm our strong commitment to ensure that inflation returns to target by 2019. We stand ready to take decisive action in a timely manner to address emerging risks that could threaten the attainment of this target,” he said.
BSP officials have said that the inflation target will be breached this year but return to the 2.0-4.0 percent range in 2013.
Last week, Central bank Deputy Governor Diwa Guinigundo said that consumer price growth would peak in the third quarter and “remain elevated for the rest of the year”.
During its last policy meeting in June, the Monetary Board trimmed its inflation forecasts for 2018 and 2019 to 4.5 percent and 3.3 percent, respectively, from 4.6 percent and 3.4 percent previously.
Its next meeting will be on August 9.
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