Ukraine crisis threatens BSP’s dovish stance

Photo courtesy of Bangko Sentral ng Pilipinas Facebook Page

MANILA, Philippines — The Russia-Ukraine conflict is driving inflation up globally and is threatening the dovish policy stance of the Bangko Sentral ng Pilipinas (BSP) from both external and internal fronts.

According to ING Bank’s senior economist Nicholas Mapa, 2022 will likely see a new supply shock that would jack up domestic prices, with local fuel pump prices hitting “levels that few may have seen in their lifetimes.”

Earlier this week, BSP Governor Benjamin Diokno said the central bank estimated that inflation reached 3.2 percent year-on-year in February. This would be faster than the 3 percent recorded in January, based on 2012 prices.

“The series of oil price hikes along with higher prices of rice and meat are the primary sources of inflationary pressures during the month,” Diokno said.

“Looking ahead, the BSP will continue to monitor emerging price developments and possible second-round effects to help achieve its primary mandate of price stability that is conducive to balanced and sustainable economic growth of the economy,” he added.

In his latest commentary, Mapa said such rhetoric was reminiscent of the domestic situation in 2018, when the BSP waited too long before tightening monetary policy.

“In the past, BSP has always gallantly stared down the face of supply-induced price spikes, opting to wait for second-round effects to kick in or for inflation expectations to unravel,” Mapa said.

“BSP appears confident in the ‘transitory’ supply-side narrative, bringing back memories of the last time inflation breached target,” he added.

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