‘Communication key to calming markets’

Medalla (CNN PHL photo)

The new governor of the Bangko Sentral ng Pilipinas (BSP) said effective communication is key to calming markets in times of volatility and rising prices.

In a recent speaking engagement, BSP Governor Felipe Medalla said the BSP is facing a “more difficult” time in terms of managing inflation and volatility due to local and external shocks that are affecting the country’s markets.

“It’s important that central banks reach their intended audience. Effective communication is key to credibly assure the markets that fundamentals are intact and that appropriate policy actions will be taken when needed in a pre-emptive fashion,” Medalla said.

In terms of inflation, the new governor said “half the battle” in managing price movements is instilling confidence in the expectation of market players in the BSP’s ability to manage evolving conditions.

“Influencing inflation expectations is, therefore, half the battle, especially during episodes of high inflation when central banks cannot afford to look unconcerned or inattentive. Of course, we should be transparent so that we can explain why when we are wrong,” Medalla said.

Most recent data show that inflation in the country has hit 6.1 percent in June, the highest price acceleration for the country in three years.

Medalla reiterated their view of inflation’s importance in crafting monetary policy, saying a favorable price environment is crucial for economic growth.

“Safeguarding price stability is not just an essential condition for preserving macroeconomic stability; it can also contribute to higher economic growth,” Medalla said.

For volatility, meanwhile, the governor said volatility is not entirely inevitable in the economy.

“So I guess we have a lot of educating to do in making the markets accept volatility and live with it. We need to do more and more of that gradually over time,” Medalla said.

“When I asked some people, ‘What is the optimal volatility?’ They always tell me, ‘More than what you had yesterday’,” he added.

Concerns have been rising lately about the volatility of the peso, and the pace of its depreciation against the dollar.

Data from the Bankers Association of the Philippines on Tuesday showed that the local currency ended the day’s trade at a fresh 18-year low.

The peso closed trade on Tuesday at P56.37 to a dollar, falling from the previous day’s trade close of P55.979 to a dollar. This is the lowest value of the peso since late 2004.


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