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IMF: BSP must be ready if inflation risk rises

Inflation

INFLATION is one of the primary challenges faced by the Philippines, and the International Monetary Fund (IMF) thinks the Bangko Sentral ng Pilipinas (BSP) must be more aggressive in raising interest rates in the event that the situation worsens.

In the IMF Executive Board’s recently concluded 2022 Article IV Consultation with the Philippines, the Washington-based lender said should inflation worsen, they would recommend that the BSP respond with a tighter monetary policy stance.

Inflation in the Philippines, IMF said, is being fuelled by the strong dollar, higher commodity prices, and tightening global financial conditions. IMF said high inflation has weakened the country’s external position and narrowed its fiscal space.

“The BSP’s prompt action to fight inflation is welcome, but further monetary tightening may be needed to keep inflation expectations well anchored,” IMF said.

“The current policy stance remains accommodative, and BSP should aim at bringing the policy rate close to the neutral real rate to securely bring inflation within the target range,” it explained.

However, the IMF noted that should inflation become less persistent or downside risks to growth materialize, the BSP should also recalibrate its monetary policy tightening.

“Monetary policy should be the first line of defense against persistent inflationary pressures,” IMF said. “The use of FXI [foreign exchange intervention] can mitigate a sharp and disorderly exchange rate depreciation, alleviate inflation, and reduce some of the pressure on monetary policy.”

The IMF expects consumer prices to average 5.3 percent this year; 4.3 percent next year; and 3.1 percent in 2024.

IMF also expects the current account deficit to increase to 5 percent of GDP in 2022, but decline to about 1.7 percent of GDP over the medium term.

Estimates for growth also showed that real GDP is expected to slow to 5 percent in 2023 from 6.5 percent in 2022. Medium-term economic growth is forecast at about 6.3 percent.

“With a difficult global environment weighing heavily on the economy, the economic outlook is subject to significant downside risks, where policy tradeoffs between supporting output on the one hand and reducing inflation and safeguarding the external position on the other, would become more acute,” IMF said.

The IMF also recommended that the government ratify the Regional Comprehensive Economic Partnership (RCEP) Agreement to facilitate the country’s access to imports and boost export diversification efforts.

This, IMF said, would enhance food security and strengthen agricultural performance should focus on raising productivity and promoting new investments in the sector.

Anti-money laundering

Further, the IMF also recommended that the government enhance its Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) efforts.

These efforts may include prioritizing amendments to the bank secrecy law to enhance the BSP’s supervisory powers, strengthen AML/CFT effectiveness and reduce vulnerabilities to corruption.

In October, the Anti-Money Laundering Council (AMLC) froze a total of P8 billion worth of accounts and real properties linked to various money laundering activities such as drugs, corruption and terrorism over the past two decades.

In a Senate Finance Committee Hearing on Monday, AMLC Executive Director Matthew M. David said the amount includes some P3 billion worth of forfeited accounts and properties while the remaining P5 billion are still pending litigation.

David said in the past 20 years, the AMLC forfeited and turned over to the national government P93 million from money-laundering activities and some P95 million have also been forfeited but still pending execution.

The AMLC official said some P16 million have also been forfeited but are waiting for the dates of execution; while P35 million that have been forfeited are currently facing appeals.

A total of P110 million of the accounts and real properties linked to corruption have been turned over to the Office of the Ombudsman for execution. Based on the rules, David said, the Ombudsman is tasked to forfeit funds linked to corruption and turn these funds over to the Bureau of the Treasury (BTr).

Image credits: Junpinzon | Dreamstime.com



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