Policy rate hike in H2 still in offing as PH inflation rises

MANILA – A policy rate hike in the second half of 2022 remains in the horizon for monetary authorities as the jump in inflation rate last March to 4 percent is expected to continue in the coming months.The BSP’s key policy rates have been slashed by a total of 200 basis points in 2020 as part of the central bank’s measures to help buoy the domestic economy from the pandemic and the rates were again kept steady by the central bank’s policy-making Monetary Board (MB) during its meeting last March.During the Philippine economic briefing on Tuesday, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the MB sees that the current level of policy rates is “appropriate given increased uncertainty surrounding the outlook for both inflation and growth.”“However, latest data including the latest inflation number this March suggest that inflation will remain elevated in the coming months,” he said.The rate of price increases in the third month this year rose to 4 percent after being steady at 3 percent in the previous two months.The average inflation in the first quarter of the year stood at 3.4 percent, within the government’s 2-4 percent target band.The MB adjusted last March the central bank’s average inflation projection for this year from 3.7 percent to 4.3 percent, and the 2023 forecast from 3.3 percent to 3.6 percent.With expectations of further acceleration of inflation rate in the coming months due in part to the impact of Russia’s invasion of Ukraine, which resulted to upticks in prices of oil and other commodities in the international market, Diokno said “the BSP must be prepared to take action to prevent price pressures from broadening and becoming more entrenched, which could translate to second-round effects.”“For this reason, the BSP is keeping a watchful eye on emerging developments to ensure that the monetary policy stance remains in line with our primary mandate of price stability. We’re prepared to take pre-emptive action as needed if inflation expectations become at risk of becoming disanchored,” he said.Diokno reiterated that “the BSP’s decision on monetary policy will remain data-dependent.”“On the timing of the disengagement strategy, I think we’re still on track despite the Russia-Ukraine crisis. We’re still looking at the second half of the year for our normalization strategy,” he said.During the same event, Finance Secretary Carlos Dominguez III said the geopolitical issues between Russia and Ukraine “is going to be a drag on our economy.”“But as you know, we are quite well prepared to handle this,” he said.Dominguez said there is no shortage of commodities like fuel, corn, and wheat despite the Russia-Ukraine war.“It’s actually the anticipation of shortages that are driving up prices. It’s affecting us negatively but we’re confident that since our agriculture production in the Philippines, particularly for our staple food, is constant, especially our rice,” he said.Citing reports from the Department of Agriculture, Dominguez said domestic price production rose and “we have to manage that very well.”While domestic pork supply remains low, he said the Philippines continues to address this by importation without facing any issue because there is no worldwide shortage of pork.With food supply constraints being addressed, Dominguez said food inflation has decelerated compared in the past months.“So, I think the management of the supply is well within our mandate and well-within our capability of doing it. We think that as the year goes on actually, prices of commodities would possibly start moderating downwards,” he added. (PNA)