MANILA -Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. on Wednesday firmed up signals of an impending resumption of monetary policy tightening in the coming weeks, saying he was “not ruling out a 25-basis-point” hike following a second month of increase in overall inflation.
“We’re looking at the numbers. We’re looking at them twice, three times,” Remolona said in a briefing with journalists. The upside risk that we feared, some of them has materialized already.”
The Monetary Board (MB) chair cited as an example their worry about transport fare hikes, which has happened as the Land Transportation Franchising and Regulatory Board (LTFRB) approved a provision increase of P1 in the minimum fare for jeepneys, as LTFRB considers petitions for an increase of P5.
Last week, Secretary Arsenio Balisacan of the National Economic and Development Authority said he did not agree on further interest rate hikes considering that BSP’s policy tightening had been the most aggressive in the region.
READ: Further policy tightening could hurt Philippine consumers -Balisacan
BSP’s benchmark rate has been at 6.25 percent since March 23, having risen by 4.25 percentage points from a historic low of 2 percent that was prompted by the need to respond to the economic impact of the pandemic.
“I wouldn’t say that we’re done with the tightening,” Remlona said. I would say, it’s a serious concern whether supply side shocks would have a lasting impact.”
He added that such shocks usually do not have a lasting impact, but they become an issue once they influence expectations about inflation or when they result in wage increases.
Relieved demand pressure
Remolona said that, for now, the MB thinks that tightening has relieved pressure from the demand side but has not really affected the country’s growth prospects.
“I don’t think [Baliscan’s] views and our views are that far apart [and] what [he] really meant was [that] we shouldn’t go for very aggressive hikes,” the BSP chief said. “But I wouldn’t rule out 25 basis points, for example.”
Last Sept. 28, Remolona even told journalists there was “a little bit of a scope”—possibility—for an off-cycle change in the BSP policy rate.
READ: November BSP rate hike seen increasingly likely
Off-cycle means a rate change in between policy meetings of the Monetary Board. The next one is set for Nov. 16.
Last week, the International Monetary Fund (IMF) said central banks needed to communicate “clearly and effectively” to augment traditional monetary policymaking actions like adjusting the interest rates, as inflation expectations take a larger role on how economies can recover smoothly from financial upheavals.
John Bluedorn and Sylvia Albrizio , economists at the IMF research department, said in a joint web post that central banks can encourage inflation expectations to be more forward-looking, through improvements in the independence, transparency, and credibility of monetary policy and by communicating more clearly and effectively.
“One way central banks can improve their communications is by simple and repeated messaging about their objectives and actions that is tailored to the relevant audiences,” Kearns said.