The central bank remains focused on its primary mandate of helping keep prices of goods and services stable amid lingering questions about its delayed response to rising inflation—something critics say may have been prompted by its officials’ desire to help the government achieve higher economic growth numbers.
In a briefing, Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. stressed that managing inflation—which, at May’s 4.6 percent, stands at its highest in at least five years—was closely linked to efforts to help the economy sustain its rapid expansion.
“Our charter says ‘price stability conducive to economic growth’,” he said, but said too harsh an application of measures to cap price hikes would be detrimental to the administration’s goal to keep the economy growing by more than 6 percent.
“If inflation gets out of hand, that will warrant strong responses that can come back to [us],” he said. “In the end, whatever growth is happening could be aborted by the need to fight inflation. These are not disconnected events.”
The central bank raised its key overnight rates last week by 25 basis points, following a similar move in May in an attempt to cap rising inflation caused by the spike in international crude oil prices, a recent shortage in rice and other agricultural commodities, all amplified by the tax hike package implemented by the administration at the start of 2018.
Critics have questioned the slow response of the BSP to these developments, with BSP officials standing their ground until early last month that the inflation spike would correct itself by next year without monetary policy intervention. This was later reversed by the BSP, saying it had detected signs that “second round” inflationary effects were taking hold across the economy.
Espenilla acknowledged the administration’s economic growth goals and stressed that the BSP’s role was to “balance” this to ensure it would be “sustainable.”
Espenilla explained that high inflation has the effect of eroding whatever benefits of economic growth that a country experiences.
The BSP chief—who was appointed by President Duterte to the post last year—said the Monetary Board was ready to hike interest rates further should the high inflation rate persist in coming months.