The Bangko Sentral ng Pilipinas (BSP) appears to be clinging to its dovish feathers even as the regulator acknowledges the shrinking space for policy accommodation amid mounting pressure on inflation as well as the beginnings of currency effects. second round on prices.
BSP Governor Benjamin Diokno noted on Wednesday that headline inflation, after surpassing the target range of 2% to 4% in April to 4.9% year-on-year, is expected to remain higher than desired.
Meanwhile, Diokno said that in addition to the higher-than-expected growth rate of 8.3% in the Philippines’ gross domestic product in the first quarter, second-round effects, particularly wage increases, were starting to kick in. manifest.
“The recent approval of minimum wage increases [in Metro Manila and Western Visayas] leaves the door open for further approvals pending since 2020,” said the head of BSP.
There are pending petitions for wage increases in other regional wage boards. Petitions for rate increases are also pending action at the Land Transportation and Franchising Regulatory Board.
“These developments strengthen the case for a withdrawal of monetary easing as inflationary pressures are likely to persist and unanchor inflation expectations,” Diokno said, meaning that accelerating inflation could also push expectations beyond the government’s target range.
Still, the BSP governor noted that the above-target rate seen in April was linked to supply issues rather than an increase in consumption.
For example, the impact of the Russian-Ukrainian conflict on the Philippines, although indirect, is felt through the impeded circulation of raw materials and the rise in prices.
Given this, PASB continues to believe that the best option to deal with rising inflation was direct non-monetary measures to be undertaken by the national government.
These fiscal policy measures include, as recommended by economic managers, increasing the fuel subsidy program; reduce tariff rates for rice, corn, pork and coal until the end of the year; and the provision of targeted fertilizer vouchers to farmers, among others.
Nonetheless, Diokno said that “any adjustment in monetary policy stance will be made in a timely manner so as not to disrupt economic recovery momentum.”
The Monetary Council (MB) meets today for the third policy meeting of this year. The BSP overnight borrowing rate is at an all-time high of 2% since November 2020.
Forecasts on the MB’s decision today differ on whether the key rate will start to rise in May or not until June. However, forecasters agree that the first upside move will be 25 basis points to 2.25%.
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