MANILA -The Monetary Board (MB) is looking at possibly resuming hikes of the Bangko Sentral ng Pilipinas’ (BSP) policy rate in their next meeting in November, as they raised their forecasts and see risks to their outlook continuing to lean to the upside.
This means that actual monthly readouts were more likely to be higher than lower compared to their forecast.
Still, the BSP’s benchmark interest rate was kept at 6.25 percent for the fourth policy meeting in a row—after the ones held in May, June and August.
READ: BSP key rate remains at 6.25%
This latest decision followed a similar move by the United States Federal Reserve that was announced earlier in the day.
BSP Governor Eli Remolona Jr.—who chairs the seven-person MB—said in a press briefing the average inflation in 2023 is now seen to reach 5.8 percent from the previous forecast of 5.6 percent.
The forecast for 2024 also rose to 3.5 percent from 3.3 percent.
READ: Philippine inflation rose to 5.3% in August
“The major upside risks to the inflation outlook are the potential impact of further adjustments in transport fares and electricity rates,” Remolona said.
“At the same time, the [MB] noted that recent indicators of domestic economic activity pointed to waning pent-up demand, even as the impact of prior monetary policy tightening continues to weigh on credit,” he added.
Even then, the policy makers still see monthly inflation prints to ease back into the target range of 2 percent to 4 percent by the fourth quarter of 2023.
Remolona said this is most likely to happen in November, but only if there were no further supply-side shocks.
‘Ready to raise’
When asked whether the MB was considering a rate hike in November, Remolona said: “Honestly, yes.”
“We’re ready to raise [the policy rate] if a supply shock (does occur and) is significant enough,” he added.
This means, Remolona also said, that policy rate cuts are off the table in 2023, but rate hikes are not off the table.
Meanwhile, the MB reiterated the need for nonmonetary interventions to persistently high inflation, including the temporary reduction of import tariffs with calibrated volumes and timely arrival of import commodities.
Iluminada Sicat, senior assistant governor at the BSP, said they have not taken into account their inflation forecasting the possible effects of the reduction of tariffs on rice.
“But that would have a positive effect in terms of reducing the inflation rate,” Sicat said. “Tariff cuts would help add supply to the market and, thus, reduce inflationary pressures.”
Such a move remains a proposal, with a petition filed by the Foundation for Economic Freedom (FEF) still pending at the Tariff Commission.
The think tank wants the 35-percent levy on imported rice to be temporarily reduced to zero percent or no more than 10 percent as an alternative to mandated price caps that, according to economics, causes a supply shortage.
The BSP added its voice to that of the Marcos administration’s economic team, which has echoed the FEF’s call for tariff cuts.