The central bank yesterday vowed to take more aggressive action to rein in the country’s record high inflation rate, saying evidence was now emerging that more forceful policies were needed to keep the peso’s volatility from fueling further price increases.
In a briefing, Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said the policy making Monetary Board “is considering strong follow-through monetary adjustment” when it convenes to decide on the interest rate policy on Aug. 9.
“We are taking into account the potential price pressures of excessive volatility in the foreign exchange market,” the central bank chief said. “While we believe that our fundamentals remain solid and healthy, sustained pressures on the peso could adversely affect inflation expectations.”
In justifying its decision to hold off on raising its key policy rates—despite clamor from financial markets that had been steadily rising since late 2017— the central bank stood pat on its statements that the current price hikes were being fueled by “supply side” factors that were beyond the ability of monetary policy to control.
This time, however, Espenilla conceded that “some demand side pressure may also be already feeding into inflation.”
“All of these warrant a firm and timely monetary response,” he said. That will be on top of the two consecutive 25-basis point hikes the Monetary Board had mandated in its last two meetings since May.
Espenilla said the pace and magnitude of policy tightening would depend on the central bank’s “comprehensive and rigorous assessment of all relevant data and forecasts.”
The inflation rate currently stands at 5.2 percent as of June —the highest in at least five years under the 2012 price base, but potentially the highest in nine years under the old measuring scheme.
Economists from the government and the private sector expect the consumer price index to rise further in coming months, possibly peaking by October before normalizing in early 2019.
Espenilla noted that the Philippine economy was strong enough to withstand any monetary policy tightening whose impact on growth, he said, would likely be limited.
“The BSP likewise reiterates its support for carefully coordinated efforts with other government agencies in implementing nonmonetary measures to help mitigate the impact of supply-side factors on inflation and social welfare,” he said.