‘No off-cycle rate hike’

Finance Secretary Carlos Dominguez III
(File photo by JOAN BONDOC / Philippine Daily Inquirer)

The head of the Duterte administration’s economic team on Friday ruled out an emergency meeting by authorities to tackle the possibility of raising interest rates to fight inflation ahead of the scheduled monetary policy meeting later this month.

Also, Finance Secretary Carlos Dominguez III and Budget Secretary Benjamin Diokno both told reporters that the country was not experiencing a “crisis” from the prevailing high consumer prices, with the latter assailing critics who describe the over nine-year high rate of 6.4 percent in August as “runaway inflation.”

Dominguez, Diokno and Socioeconomic Planning Secretary Ernesto Pernia briefed Senate finance committee chair Sen. Loren Legarda on inflation Friday morning ahead of plenary deliberations on the proposed 2019 national budget in the upper chamber.

Dominguez said “it was decided that there will be no off-cycle” interest rate hike of the Bangko Sentral ng Pilipinas’ policymaking Monetary Board ahead of its Sept. 27 meeting on the monetary policy stance.

Last Wednesday, London-based Capital Economics said “high inflation in the Philippines means that another 50-basis point hike in its policy rate is likely, possibly even before the central bank’s next scheduled meeting on Sept. 27.”

Amid higher-than-expected headline inflation, the Monetary Board increased the key policy rate by 25 bps each in May and June, followed by 50 bps last month—the most aggressive hike in a decade.

“You really think we are panicking? You are panicking, not us,” said Dominguez, who serves as ex-officio representative of the President to the Monetary Board.

Even as inflation already averaged 4.8 percent in the first eight months or above the government’s 2-4 percent target range for 2018, Dominguez said that “you have to really take a long view of inflation—when you take a long view, you will realize that we are the second lowest inflation of the administrations since Cory [Aquino’s].”

“I’ve been secretary [of agriculture] 30 years ago, too, but you know you have to take a long view of not every bump you are going to take is going to be a major crisis. Do you think it’s a major crisis, or are you making it a major crisis? I’m telling you, there is such a thing as perspective—it may look bad, but when you look at the history, it’s not that bad,” the Finance chief said.

He cited that rice inflation in 2014 was double of the price increases in the Filipino food staple now.

“We are not in a major crisis. It may be a serious problem for some people, but for the nation in general, it’s not a major crisis,” Dominguez added.

For his part, Diokno said: “People are characterizing it as ‘runaway inflation’; to me that’s irresponsible because runaway inflation means no one is in control—it’s like a runaway car without a driver.”

“Runaway inflation is associated with hyperinflation where even the central monetary authorities have no handle of what’s going on, so that’s an irresponsible statement,” Diokno added.

“We have seen higher inflation in the past—for example during the time of Mr. (Ferdinand) Marcos the inflation rate was close to 50 percent; time of Mrs. Aquino, 21.2 percent in August of 1991. Time of (Fidel) Ramos, 13.9 percent in Feb. 1992; and then time of Erap (Joseph Estrada), 10.7 percent in Jan. 1999 during the height of the impeachment trial. And then time of GMA (House Speaker Gloria Arroyo) it was 10.5 percent in Aug. 2008. During time of P-Noy, 5.2 percent in June and Oct. 2011,” Diokno noted.