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MALACAÑANG on Sunday expressed confidence in the
“calibrated response” taken by Bangko Sentral ng
Pilipinas (BSP) Gov. Amado Tetangco Jr. to fight
inflation which rose to 9.6 percent last April.
In his
weekly column, “The View from the Palace,” Press
Secretary Ignacio Bunye noted that soaring inflation is
“not unique to the Philippines” and affects other
countries, even oil producers.
Bunye
said that Tetangco, following “conventional wisdom”, has
increased the BSP’s borrowing rate by 25 basis points to
dampen inflation.
“Of
course, this tool must be properly calibrated because
there are also drawbacks to higher interest rates. But
we are confident that Governor Tetangco knows the exact
direction we should be headed [for],” said Bunye, who
will join the Monetary Board on July 3.
He
sought to explain the impact of Tetangco’s strategy
against inflation, saying that through interest rates,
the BSP “hopes to limit the ability of banks to lend
money to their customers,” and ultimately drive down
demand, prices and inflation rate.
“Because
of higher interest rates, prospective borrowers might
postpone borrowing. The money that could have been lent
out will be retained by the bank and will not flow
[into] the market. On the other hand, depositors now
enjoying higher interests on their deposits, may just
decide to keep their money in the bank instead of
spending,” he said.
He
explained that “with less buying, demand for products
will theoretically decline. With less demand, prices of
products will theoretically go down and with that, the
inflation rate goes down, too.”
Bunye
said that most countries have also been affected by
“runaway” prices of oil and food. He cited a recent
issue of The Economist, which reported that inflation
has risen by 8 percent to 10 percent in China, India,
Indonesia and Saudi Arabia over the past year; 14
percent in Russia; 23 percent in Argentina; and 29
percent in Venezuela. |
