BSP still leaning toward tight monetary policy

The rate of rise in consumer prices might have been tame in the last few months, but the Bangko Sentral ng Pilipinas said there was still a chance that inflation would exceed the 5-percent forecast for the third quarter.

As a result, the BSP has hinted that it will maintain a tight monetary policy.

“It is still difficult to rule that out,” said BSP Deputy Governor Diwa Guinigundo, referring to the potential rise of inflation to beyond 5 percent this quarter.

But Guinigundo was quick to add that average inflation for the full year could still stay within the official target of 3 to 5 percent.

BSP Assistant Governor Ma. Cyd Tuaño-Amador said the monetary authority would continue to consider the proposal for the BSP to implement another percentage-point increase in the reserve requirement for banks. The move will ensure that average inflation for the full year will not exceed the ceiling set.

“[Raising the reserve requirement some more] is on the table,” Amador said.

Reserve requirement is the percentage of deposits that a bank must keep with the BSP in reserve. Following a one-percentage-point hike implemented by the BSP last month, the reserve requirement is now at 20 percent.

Since the start of the year, the BSP has twice raised its key policy rates and even hiked the reserve requirement once. The moves were meant to temper inflation.

The key policy rates now stand at 4.5 percent for overnight borrowing and 6.5 percent for overnight lending.