The BSP is ‘considering’ an off-cycle rate hike as inflation risks worsen
By Katherine K. Chan, A reporter
BANGKO SENTRAL ng Pilpinas (BSP) is open the department’s aggressive monetary policy approach to curb inflation as shocks continue to emerge from the conflict in the Middle East continue to eat at consumer prices.
In an exclusive interview on One News’ Money Talks with Cathy Yang On Thursday, BSP Governor Eli M. Remolona, Jr. he said the Monetary Board is considering a second rate hike before its June 18 meeting.
Asked about the possibilities of strengthening the cycle, Mr. Remolona said: “I can’t say it is possible. We are considering it.”
However, the central bank governor noted that they may wait until the May inflation report on June 5 before delivering the next monetary policy decision.
“That’s very close to the next scheduled policy meeting. So, for now, it’s a toss-up whether we do an off-cycle or wait for a regular meeting, which isn’t that far off,” Mr. Remolona.
Mr. Remolona also acknowledged the growing risks of inflation, with slowing economic growth and accelerating inflation, but said the BSP is focused on fiscal policy to help the economy recover as it seeks to expand its monetary policy tools to target inflation.
The BSP reversed its policy stance at its April 23 meeting, starting a new round of tightening as it unveiled its first 25 basis point hike in two years to bring the key policy rate to 4.5%.
Central Bank offOfficials said their latest move was aimed at preventing the broader effects of a second round of deflation, keeping inflation expectations on target and pulling it back to their target as the protracted Middle East war clouded the outlook for growth.
However, despite the first rate hike last month, inflation has been faster than expected, raising the risk that the BSP may fall behind the curve, according to Mr Remolona.
“Normally, a supply shock, you would look at it because it will go away and you will go back to where you are, but now this is a big shock and it is a continuing shock,” he said. “So, we have to react and we have to react aggressively, I think, in this situation. That’s why we raised the prices early.”
Inflation has breached the BSP’s 2%-4% target and monthly forecasts since the war broke out in late February.
In April, rising food and utility costs amid higher oil prices pushed headline inflation to a more than three-year high of 7.2% from 4.1% in March and 1.4% last year. This exceeded the BSP’s average of 5.6%-6.4% for the month.
Asked if they are now behind the curve, Mr. Remolona said: “There is a risk. It depends on whether the supply shock continues.”
He noted that they failed to anticipate the immediate impact of the oil shock on other items in the consumer basket such as fertilizer and rice, such as the cost of those. things usually take time to rise.
Mr. Remolona said the BSP is closely monitoring fares, which he said were “fixed very quickly,” as well as rapid inflation in the bottom 30 percent of households.
The central bank governor also noted that the decline in consumer spending has helped moderate inflation but added that they do not want to deal with rising price pressures that way.
“Decreasing consumer spending helps inflation. We don’t want to reduce the power of money in that way. We want consumer spending to start again and it is our job to keep inflation,” said Mr.
The central bank projects inflation to rise above 5% for most of the year to 6.3%, faster than its pre-war forecast of 5.1%. By 2027, it expects inflation to cool to 4.3%.
Meanwhile, Mr. Remolona said the BSP can probably tolerate the peso hitting P63.50 to the dollar as long as it is in a “moderate” path that will not hold inflation.
“We are worried about it until it increases the rate of inflation,” he said. “At the same time, a very weak peso helps our exports. Our exports need help because we are facing a current account deficit. So, we cannot allow this kind of deficit to continue forever, and a weak peso helps close the gap. But we are not trying to demand a level of the peso.”
The central bank, according to Mr. Remolona, also remains “business as usual” in the foreign exchange market to reduce the sharp fluctuations between the recent episodes of the peso falling into a back-to-back historic decline.
The local unit closed at its historic low of P61.75 against the dollar for two straight trading days this week as lingering market uncertainty stemming from the ongoing war in the Middle East caused security-haven demand for the greenback.
However, it gained 15.90 centavos on Thursday to close at P61.581 per dollar from its close of P61.74 on Wednesday.
