The Monetary Board (MB) might again raise the policy rate of the Bangko Sentral ng Pilipinas (BSP) this month by 50 basis points or 0.5 percentage point (ppt) if the inflation rate last February indeed heated up to 9 percent.
Last week, the BSP said it expected the rate of increase in the prices of basic goods and services across the nation in February to range between 8.5 percent and 9.3 percent.
Considering the range’s midpoint of 8.9 percent, the BSP’s forecast suggests that inflation further accelerated from the 14-year high of 8.7 percent in January.
This prompted a 0.5-ppt rate hike last month of the BSP’s key rate, which is now at 6 percent.
Following that decision, MB chair and BSP Governor Felipe Medalla hinted that the next policy meeting—scheduled on March 23—might result in another increase of 0.25 ppt or 0.5 ppt.
Worst-case scenario
On March 3, Medalla told reporters that if the February print showed a “worst-case” scenario of above 9 percent, “clearly we have to do something.”
Asked whether a readout of higher than 9 percent would prompt a 0.5-ppt rate hike, Medalla said “maybe.”
At a hearing of the committee of appropriations at the House of Representatives earlier this week, Medalla also hinted that the government’s fight against high inflation might drag on to 2024, as inflation was expected to go back to within the preferred range no earlier than late 2023.
Medalla told lawmakers that inflation would start to normalize or recede back to the government’s target range of between 2 percent and 4 percent “later this year or early next year.”
Regarding its forecast for the February readout, the BSP said upward price pressures last month were expected to have come from higher LPG prices as well as higher prices of key food items like pork, fish, egg and sugar.
Timely adjustments
On the other hand, the lower prices of domestic petroleum, fruits and vegetables, chicken, and beef, along with the peso appreciation might help push down the monthly average inflation in February.
“The BSP will continue to adjust its monetary policy stance as necessary to prevent the further broadening of price pressures as well as the emergence of additional second order effects,” the regulator reiterated, also suggesting continued increases in its policy rate to cool inflation.