THE Bangko Sentral ng Pilipinas (BSP) is expected to maintain its tight monetary policy longer on the back of higher transportation fares, power rates, and oil prices, according to a US-based think tank.
In an economic brief, GlobalSource Partners country analysts Diwa Guinigundo and Wilhelmina Manalac added that recent pronouncements from the Department of Trade and Industry (DTI) could also stoke inflation.
The DTI-Consumer Protection Group (CPG) said out of the 217 items in the SRP bulletin, 29 percent or 63 items currently have pending price adjustments. (Full story here: https://businessmirror.com.ph/2024/01/08/traders-request-for-price-adjustment-under-review/)
“We believe that the BSP will maintain a higher interest rate for longer, precisely because first of all, it considers its previous monetary tightening is yet to fully take effect because of the long lags of monetary adjustments,” the think tank said.
“Upside risks to the baseline forecasts including global uncertainty remain dominant such that an early reset could trigger a price upsurge and upset inflation expectations,” it added.
However, Guinigundo and Manalac said they shared the BSP’s estimates that inflation will average 2 to 4 percent in the first part of 2024. Inflation could breach the 4 percent rate in the middle of the year, though.
“It will be helpful to the cause of inflation management if non-monetary measures are more vigorously pursued, especially those involving agricultural and logistics support,” the analysts said. “It will be welcome news indeed if the December inflation record is replicated month after month this year.”
The analysts said, however, that keeping interests rate high for a longer period would not lead to “bad results in both output and employment.”
They said the economy’s growth in the past three quarters of 2023 cannot be ignored. This is despite the fact that the 5.5-percent average GDP growth was slightly below the 6 to 7 percent target.
This growth rate was considered the fastest in the region. The analysts also stressed that jobs data—unemployment and underemployment—have been improving.
“Dissonant voices on the policy front could create black noise in the market and could undermine faith in public policy,” Guinigundo and Manalac said.
Last year, the National Economic and Development Authority (Neda) said high interest rates could hurt local producers and slow down the country’s GDP growth.
Socioeconomic Planning Secretary Arsenio M. Balisacan said he is not in favor of further rate hikes, as inflation is being caused by supply side issues that jack up commodity prices. Such a situation, he said, does not call for monetary policy tightening.
Raising interest rates would also not lead to a competitive peso, he added. Balisacan said a weak peso is what the country needs to grow faster, since this will allow exporters and local producers to earn more, as well as increase the purchasing power of dollar earners and their families in the Philippines.
It is a misnomer, Balisacan explained, that a weak peso translates to a weak economy. On the contrary, it allows sectors such as Business Process Outsourcing (BPO) and Overseas Filipino Workers (OFWs) to have greater purchasing power.
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