BSP defends move to keep rates steady

The Bangko Sentral ng Pilipinas is trying to strike a delicate balance between keeping prices of basic goods and services in check while maintaining an environment that will promote economic growth, according to a ranking official who defended the monetary authority’s decision to keep key interest rates unchanged last month.

In a statement e-mailed to reporters, BSP Deputy Governor Diwa Guinigundo stressed that the central bank remained “firmly committed” to its primary mandate of fighting inflation, amid questions among bankers and economists as to whether regulators should have acted sooner to cap the acceleration in price increases.

The domestic inflation rate hit a three-year high of 3.9 percent in February, repeating a record that was also hit in January. The central bank refrained from raising its overnight borrowing rate—its main tool to combat price increases—at both meetings of the policy-making Monetary Board in the last two months, saying it was imprudent to react to developments that had already passed.

“As BSP’s history of inflation targeting has shown, focus and discipline in avoiding unnecessary overreactions result in long-term stability of prices, expectations and credibility,” Guinigundo said. “While there are pressures to raise interest rates, our careful assessment of the data and facts does not point to immediate rate hikes.”

The central bank deputy chief said future actions “will continue to be about taking a balanced approach and careful assessment of data.”

“Ensuring that the cure does not become the disease itself suggests that finding the right balance in the conduct of monetary policy is absolutely necessary,” he said, adding that authorities stand ready to tighten monetary policy should it detect additional signs that prices would not stabilize by 2019 as they had predicted.