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Philippines: BSP turns hawkish, hints of rate hike
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has turned hawkish, saying it is ready to take decisive action as the inflationary impact of supply-side shocks have somewhat spread.
BSP Governor Nestor Espenilla Jr. said on the side events of the 51st Annual Meeting of the Asian Development Bank (ADB) that the central bank has revised upward its inflation forecast as it now expects inflation to range between 3.9 and 4.7 percent in April.
Inflation rose to 4.3 percent in March from the revised 3.8 percent in February due to rising oil and food prices, as well as the transitory impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
Inflation, however, averaged 3.8 percent in the first quarter, still within the BSP’s two to four percent target.
Espenilla told reporters on the sidelines of the ASEAN-3 Macroeconomic Research Office (AMRO) – BSP Joint Seminar that monetary authorities would continued to look at the data that suggests concerns may be elevating in terms of inflationary pressures.
“We’ve said that there will be some inflationary impact of supply-side shocks. That’s a given. And we don’t necessarily react to that. What we react to is whether it’s spreading and its affecting expectations. And our reading, based on the latest data, it seems to have spread somewhat,” the BSP chief said.
BSP Deputy Governor Diwa Guinigundo said on the sidelines of the AMRO’s launch of the ASEAN+3 Regional Economic Outlook 2018 that monetary authorities continue to closely monitor actual inflation as well as inflationary expectations.
“We also have to look at what is happening to inflation expectations in light of what the market describes as increasing trend of inflation and higher inflation expectations. Those two are important inputs to monetary policy consideration,” Guinigundo said.
He said another point of consideration is inflation expectations as inflation outlook for 2018 and 2019 is consistent with the two to four percent target set by the central bank.
“But let me just clarify, if all of the sum of all of these points of considerations point to the BSP to undertake some decisive action, we will not have second thoughts on this, because maintaining price stability is our primary mandate and we are going to adhere to that mandate of the BSP,” Guinigundo said.
“People say that prices have gone up and this is the time for the BSP to reconsider its present monetary policy stance. But again you have the discipline of inflation targeting and you just don’t move the policy rate without considering all of the factors that we normally consider in the context of inflation targeting,” he added.
According to Guinigundo, authorities continued to look at both price and monetary conditions, as well as the trend in output. The Philippine Statistics Authority (PSA) is set to release the inflation figure for April today.
“If it is higher than 4.3 percent then it means something. If it is lower than 4.3 percent, then we have to reassess all the numbers. You know our position. We keep on monitoring those numbers. We don’t just focus on what we see today but you have to look at it at a medium term perspective especially with respect to the medium term,” Guinigundo said.
Another consideration, he said, is the latest decision of the US Federal Reserve to keep interest rates steady. The US central bank is seen further raising interest rates two more times this year after a rate increase last March.
“It will be considered. I am sure that will be a very important input to monetary policy discussion on May 10,” Guinigundo said.
Source: https://www.philstar.com/business/2018/05/04/1811873/bsp-turns-hawkish-hints-rate-hike#Rkw0gWx85SJMiiqS.99