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THE
Bangko Sentral ng Pilipinas (BSP) raised its policy
rates by 25 basis points Thursday in a preemptive strike
meant to prevent supply-side bottlenecks from spilling
over into demand problems, such as higher wages and more
expensive transport costs.
The
decision lifted the rate at which the BSP borrows from
and lends to banks to 5.25 percent and 7.25 percent,
respectively.
It was
25 basis points lower than the 50-basis-point hike the
market widely expected.
“The
Monetary Board believes that there are already
indications that supply-driven pressures are beginning
to feed into demand.
“Core
inflation as of May 2008 has reached its highest level
since April 2006.
“Recent
business- and consumer- confidence surveys also indicate
an upward shift in inflation expectations, coinciding
with increased term spreads on government securities and
higher secondary-market rates,” BSP Governor Amando
Tetangco Jr. said right after the decision was reached.
Fearful
that so-called second-round effects would gain more
momentum given early indications, the seven-man Monetary
Board acted promptly Thursday “to reign in inflationary
expectations,” Tetangco said.
Deputy
BSP Governor Diwa Guinigundo told reporters they meant
to address the heightening threats not only through the
interest-rate channel but through the self-fulfilling
channel of inflation expectations, as well.
“We are
now responding to early indications of second-round
effects and to higher inflation expectations,” he told
reporters.
According to Guinigundo, the policy-rate hikes, which
also affect its term rates and its special deposit
accounts, or SDAs, should help mute unwanted demand.
“If they
see the BSP is really serious about not allowing
inflation to range beyond a certain point, then people
will stop pricing and costing goods and services
increasingly higher,” he said.
Guinigundo was looking down the policy horizon that
stretches 15 to 21 months forward, which means the day’s
decision should help bring down the forecast inflation
in 2009 back to the 2.5 percent to 4.5 percent range.
This
year the forecast inflation was seen markedly higher,
ranging from 7.0 percent to 9.0 percent instead of the
original 3.5 percent to 4.4 percent.
Actual
inflation in the first five months already average 6.86
percent or well above target inflation ranging only from
3 percent up to 5 percent.
The rate
hikes highlight the BSP’s focus on price stability over
growth prospects over the same policy horizon:
“Favorable conditions arising from a respectable and
still solid domestic growth as well as a strong external
payments situation imply that the economy can withstand
a measured tightening.”
The
economy grew by 5.2 percent in terms of the gross
domestic product in the first three months.
But
inflation, which averaged only 4.9 percent in January,
has steadily moved up to 5.4 percent in February, 6.4
percent in March and 8.3 percent in April.
Both
Tetangco and Guinigundo vowed to “undertake further
action as and when necessary” to ensure that prices in
the Philippines remain stable. |
