BSP ready to still raise rates

MANILA  -Despite a slower-than-expected inflation readout in October, the Bangko Sentral ng Pilipinas (BSP) hinted at readiness to continue policy tightening when needed or at least delay interest rate cuts, noting that upward pressure on prices remained significant over a three-year horizon.

The BSP said in a statement that, for the next policy decision in the upcoming Nov. 16 meeting of the Monetary Board (MB), they will consider the latest outturn—4.9 percent in October from 6.1 percent in September—along with the third-quarter growth rate of gross domestic product which will be announced today, Nov. 9.

The MB “deems it necessary to keep monetary policy settings sufficiently tight until inflation expectations are better anchored and a sustained downtrend in inflation becomes evident,” the BSP said.

Also, the central bank “remains prepared to undertake further monetary policy action as necessary to prevent supply-side pressures on prices from leading to additional second-round effects and dislodging inflation expectations,” it added.

The latest monthly readout was below the lower limit of the BSP’s expected range of 5.1 percent to 5.9 percent, with lower prices of vegetables and rice tempering increases in utility rates.

READ: Easing food prices tamed inflation in October to 4.9%

Still, the BSP said the outlook in the coming months with respect to the increase in prices of goods and services that the average Filipino household buys “is still seen to remain elevated with the 2024 central forecast shifting closer to the upper end of the inflation target range, indicating persistent price pressures.”

This means that inflation is expected to approach 4 percent next year.

“Inflation expectations have also risen further, highlighting the risk of second-round effects,” the BSP added.

The central bank was referring to the potential impact of higher transport fares, increased electricity rates, higher oil prices and higher-than-expected minimum wage adjustments in areas outside Metro Manila.

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The BSP is also watching out for the possible effects of the nonextension of Executive Order 10, higher domestic food prices and the additional effect of a strong El Niño episode on food prices and utility rates.