Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said Tuesday the current monetary policy remains appropriate, but the Monetary Board is ready to take action to rein in inflation.
Espenilla said inflation rate, or the movement in consumer prices, was expected to remain elevated in 2018, but would likely settle within the target range of 2 percent to 4 percent in 2019.
“The upside risks continue to dominate… [such as] additional wage adjustments, transport fare hikes, policy normalization in advanced economies,” Espenilla said during an economic forum organized by the Economic Journalists’ Association of the Philippines at Ayuntamiento de Manila in Intramuros, Manila.
Espenilla said the proposed rice tarriffication, or the opening of the local market to rice imports, would reduce the inflation path in the coming months.
“The BSP’s move on policy will remain data-dependent,” he said, adding the “economy can accommodate monetary policy tightening.”
Espenilla earlier said was not seeing inflation rate hitting 6 percent this year. “In our forecast, we are not seeing 6 percent. It might be close to the last one [5.7 percent]. It is hard to predict,” Espenilla told reporters.
Inflation rate accelerated to 5.7 percent in July from 5.2 percent in June, bringing the first seven months’ average to 4.5 percent, above the target range of 2 percent to 4 percent for the year.
“The August inflation may actually be higher than July. The peak may be in August or September,” Espenilla said.
He said if other goods”•aside from food and fuel”•would also see faster price increases, it would be a “red flag for the BSP.”
The Bangko Sentral was compelled to raise interest rates again on Aug. 9, the third time this year by a rare 50 basis points to 4 percent in a bid to rein in inflation.
The interest rates on the overnight lending and deposit facilities were also increased accordingly. The BSP earlier raised the policy rate by 25 bps each in May and June 2018.
Espenilla said in deciding to raise the BSP’s policy interest rate anew, the Monetary Board noted that latest baseline forecasts shifted over the policy horizon, indicating some risk of inflation exceeding the target.
He said upside risks also continued to dominate the inflation outlook, as the sustained increase in core inflation suggested broadening price pressures amid resilient aggregate demand conditions. Meanwhile, he said inflation expectations remained elevated, although staying within the target of 2 percent to 4 percent for 2019.
He said the board deemed it necessary to have stronger monetary action to rein inflation expectations and prevent sustained supply-side price pressures from driving further second round effects, even as the previous monetary policy responses continued to work their way through the economy.
