THE Bangko Sentral ng Pilipinas (BSP) does not consider the recent slowdown in inflation as well as the expected continuation of the downtrend in December as enough reason to ease monetary policy.
Inflation slowed to 4.1 percent in November while BSP Governor Eli M. Remolona Jr. expects inflation to settle within the target range in December.
These are deemed welcome developments for the country. However, it may take some time before the BSP becomes dovish. Currently, Remolona said the BSP remains hawkish and may remain that way until “early 2024” when inflation could hit below 3 percent.
“To think about easing is premature. We wanna be sure we stay within the target range, comfortably within the target range. And then when we [are] comfortable about that, then we can start to think about easing,” Remolona said.
“If inflation is within the target range, for one month, that’s not enough. It has to be there and it has to look like it’s going to stay there and then we can start to consider not being hawkish,” he also said.
Remolona said there are still risks that the BSP needs to watch out for. Monitoring these risks and preventing them from negating inflation gains is crucial, especially for the Philippines.
He explained that normally, supply shocks easily dissipate and this makes most central banks gloss over them, knowing that they will not be enough to introduce second-round effects into the economy.
However, Remolona said this is not the case in the Philippines. When the country experiences supply shocks, these can lead to expectations, which could pave the way for second-round effects.
“Actually, supply shocks often lead to expectations. If they’re large enough, if they’re frequent enough, they’ll lead to expectations of higher inflation and it leads to second-round effects,” Remolona said.
“So that’s what we worry about. We’re monitoring inflation expectations, we’re trying to keep inflation expectations anchored and that’s the way we hope to mitigate the second-round effects,” he added.
Meanwhile, Remolona said recent efforts of the BSP to tighten monetary policy have worked their way into the economy albeit with a longer-than-expected lag time.
Remolona admitted this has to do with the transmission mechanism of monetary policy. He said this is something that BSP is working on to shorten the lag-time impact of monetary policy on the economy.
“The tightening has been working its way in the economy so they’ve had an effect. Lags are somewhat long. We wish they were more, they were shorter but that’s work we still have to do, we have to improve the transmission mechanism of monetary policy,” Remolona said.
The Philippine Statistics Authority (PSA) earlier disclosed that the country’s inflation slowed to 4.1 percent. This was slower than the 4.9 percent posted in October 2023 and 8 percent recorded in November 2022. (Full story here: https://businessmirror.com.ph/2023/12/05/inflation-slows-to-4-1-in-november-psa/)
However, PSA data showed despite the slower headline inflation, certain commodities like rice posted an inflation rate of 15.8 percent in November, higher than the 13.2 percent posted in October 2023 and the 3.1 percent posted in November 2022.
Based on the latest data, the three rice classes being monitored by PSA showed higher rates in November compared to both the October 2023 and November 2022 rates.
Regular milled rice prices increased to P46.73 per kilo in November 2023, higher than the P45.42 per kilo in October 2023 and P39.57 per kilo in November last year.
Well-milled rice, meanwhile, averaged P51.99 per kilo in November 2023. This was also higher than the average of P51 per kilo in October 2023 and P43.86 per kilo in November 2022.
Special rice varieties also showed higher prices at an average of P61.47 per kilo. This is higher than the P60.95 per kilo in October 2023 and P53.53 per kilo in November 2022.
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