IN an effort to lock down rising inflationary pressures in the policy horizon, the Bangko Sentral ng Pilipinas (BSP) hiked its rates anew in its monetary-policy meeting on Wednesday and expressed preparedness to take “further policy action as needed.”
At the press briefing following the fourth monetary-policy meeting for the year, BSP Governor Nestor A. Espenilla Jr. announced the decision to raise their main policy rate by 25 basis points. This came on the heels of their May monetary-policy meeting, where they decided to hike their main policy rates by 25 basis points for the first time since 2014.
Espenilla said the latest decision came as the elevated inflation expectations for 2018 and the risks of possible second-round effects from ongoing price pressures “argued for follow-through monetary-policy action.”
“Given these considerations, the Monetary Board believes that further policy action enables the BSP to reinforce its signal on safeguarding macroeconomic stability in an environment of rising commodity prices and ongoing normalization of monetary policy in advanced economies,” the BSP governor said in his post-meeting statement.
The interest rates on the overnight lending and deposit facilities were, likewise, raised accordingly.
Inflation forecasts scaled back
BSP Deputy Governor Diwa C. Guinigundo also announced on Wednesday the Central Bank’s decision to scale down their inflation projections both for 2018 and for 2019.
In particular, for 2018, inflation is now expected to hit 4.5 percent, from the earlier 4.6-percent forecast, taking into account the lower-than-expected inflation outturn in May.
The projection was also adjusted accordingly for 2019, with next year’s inflation now expected to hit 3.3 percent from the earlier 3.4-percent projection.
Despite the slight scale-back and the back-to-back hike, BSP officials conceded that the 2018 inflation will still most likely fall outside their target range.
The BSP said the sustained robustness in economic activity for the remainder of the year, the positive base effects form last year’s inflation, the expectation of a minimum-wage hike later this year and the scheduled P2.50 per pack additional taxes on tobacco, as scheduled, are the main factors behind why inflation will miss BSP target for 2018.
Espenilla said while it is highly unlikely to get inflation back to the 2 percent -to-4 percent target range this year, their recent policy actions ensure that the growth of consumer prices will be pulled back to target in 2019.
Guinigundo also cited the expected decline in oil prices and negative base effects for 2018 as pull forces to ensure inflation for 2019 will not overshoot their desired range.
Ready for further action
The BSP took a bold and brazen forward guidance to the table on Wednesday, saying they are prepared to take further action even after they have already pulled the trigger for two consecutive meetings this year.
In particular, Espenilla ended his post-policy meeting statement thus: “The BSP is prepared to take further policy action as needed to achieve its price and financial stability objectives.”
He also said the BSP wishes to emphasize on their “continued vigilance against developments, including excessive peso volatility, that could affect the outlook
for inflation.”
Data from the Bankers Association of the Philippines showed the local currency closed trade at P53.48 to a dollar anew on Wednesday, losing 4 centavos from the previous day’s trade.
Manufacturers and consumers have since raised concerns on the strong depreciation of the peso in recent weeks, as a peso of lower value against the dollar aggravates the rise in prices of imported goods, such as oil and other raw materials.
Espenilla told reporters that the statement of preparedness for another hike round basically reflects the BSP’s continued watchfulness to determine whether recent policy action is sufficient to secure inflation’s return to the target next year.
The governor also said that while right now, the action taken seems sufficient for the information they have, they are still on their toes as “It is still a very complex environment” to tread in.
The BSP’s next monetary-policy meeting is scheduled on August 9. This will be the fifth of eight monetary policy-setting meetings for the year.