PLAYING CATCH-UP Eli Remolona Jr. —PHOTO FROM BSP
MANILA -Any additional rate hikes, including a possible tightening in November, won’t do much to ease building price pressures, analysts said, although some experts believe another upward adjustment is needed to safeguard the inflation path.
What’s clear though is that Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr.’s pronouncement that another tightening is possible at the Monetary Board’s Nov. 16 meeting—even after the off-cycle hike on Thursday—has left experts divided on whether such aggressive moves are needed at the moment.
READ: BSP delivers ‘urgent’ anti-inflation rate hike
For BMI, a research company under the Fitch Group, lifting the key rate next month will “do little” to tame painfully high prices because most of the upward pressures are coming from supply problems that rate increases cannot fix.
Staying elevated
“As such, we think that inflation will stay elevated until policies aimed at quelling supply-side constraints are implemented,” BMI said in an e-mailed commentary sent to journalists.
To justify the 25-basis point rate hike at an off-cycle meeting this week, Remolona said the Monetary Board (MB) “recognized the need for this urgent monetary action” to prevent inflation from infecting the majority of key consumer items that Filipinos buy.
This, as the BSP chief conceded that inflation could breach the BSP’s 2 to 4 percent annual target this year and next. He said the MB should have resumed tightening monetary policy in September when data showed price growth surged to a four-month high of 6.1 percent, adding that the central bank is now trying to “catch up.”
Aris Dacanay, economist at HSBC Global Research, said he expects the BSP to keep its policy rate steady at 6.50 percent in the November and December meetings of MB because demand-side pressures have eased. Government data showed core inflation, which excludes volatile consumer items, decelerated further to 5.9 percent in September from the previous month’s 6.1 percent.
READ: PH inflation rose to 6.1% in Sept as food prices, transport cost soared
“After all, core inflation is still threading downwards, which means the BSP’s tight monetary stance is already in the works,” Dacanay said. “Since the off-cycle hike is preemptive in nature, we don’t think the BSP will hike interest rates in its November rate-setting meeting, even if the Fed hikes in November.”
But analysts at Bank of the Philippine Islands (BPI) have argued that the effectiveness of rate hikes in bringing down inflation “shouldn’t be downplayed” even if the cause of brutally-high prices is mostly on the supply side.
“Inflation driven by supply may eventually lead to second round effects, which the BSP aims to counter with its rate hikes,” BPI said.
“The BSP’s credibility as an inflation fighter is also another reason why another rate hike is necessary despite the fact that inflation is driven mostly by supply. The rate hike is a statement from the BSP that it is determined to bring inflation back to its target,” it added.