Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said Tuesday the bank is ready to take a decisive action to rein in inflation, following two successive interest rate hikes in May and June this year.
Espenilla told the participants of the Institute of Corporate Directors 2018 mid-year economic briefing at Diamond Hotel in Manila that the two successive rate increases in May and June were measured and deliberate responses to the evolving economic environment and dynamic market conditions meant to help anchor inflation expectations and temper second-round effects.
“These were undertaken even as we await full implementation of appropriate policy response to supply shocks such as the national government’s social safety net programs,” he said.
“We reaffirm our strong commitment to ensure that inflation returns to target by 2019. We stand ready to take decisive action in a timely manner to address emerging risks that could threaten the attainment of this target,” Espenilla said.
Inflation in June accelerated to an over five-year high of 5.2 percent from 4.6 percent in May and surpassed the government forecast for the month, triggered by faster increases in the prices of some food and beverage products.
The June inflation, based on the 2012 price index, was also significantly faster than 2.5 percent registered a year ago. This brought the average inflation in the first half to 4.3 percent, beyond the BSP’s 2018 target range of 2 percent to 4 percent.
ING Bank Manila senior economist Joey Cuyegkeng earlier said the high inflation point for June would likely require further monetary policy response as early as the August meeting.
“Real policy rate is deeper in the red indicating that a more aggressive economic policy response would be needed. Real policy rate is now -1.7 percent from -0.4 percent only in January,” Cuyegkeng said.
Espenilla said monetary authorities were treating the inflation outlook as a concern, given the elevated inflation expectations and increasing risks of second-round effects from ongoing price pressures.
“We assure that our monetary policy responses to elevated inflation pressures were, and are, timely and appropriate,” Espenilla said.
Australia and New Zealand Banking Group Ltd. said in a previous report that the Bangko Sentral might raise interest rates by another 25 basis points to 3.75 percent before the close of the year to rein in inflation.
ANZ said strong growth resulted in persistent macro imbalances, the most noteworthy of which were higher inflation and a wider trade deficit.
“Recent tax reforms have added further to price pressures…We expect the Bangko Sentral ng Pilipinas to hike its policy rate by another 25 bps in November 2018. This follows the 50 bps of tightening hitherto this year,” ANZ said.
ANZ said with growth expected to remain high at 6.8 percent in 2018, macro imbalances were likely to intensify in the Philippines. It said the most noteworthy impact of strong growth was observed on the trade deficit, which surged 59 percent year-on-year between January and April this year.
“Strong growth momentum, together with other developments, including the lingering impact of tax reforms, elevated global crude oil prices, and a weaker peso, have raised price pressures in the system… We expect CPI inflation to average 4.6 percent in 2018, above the upper bound of the official target range of 2 to 4 percent,” it said.