The Bangko Sentral ng Pilipinas is considering a “strong follow-through” monetary action in the next meeting of the Monetary Board in August amid rising inflation and excessive volatility in the foreign exchange market, Governor Nestor Espenilla Jr. said Friday.
“Accordingly, the BSP will sustain its utmost vigilance. In particular, we are taking into account the potential price pressures of excessive volatility in the foreign exchange market. While we believe that our fundamentals remain solid and healthy, sustained pressures on the peso could adversely affect inflation expectations,” Espenilla said during the second-quarter inflation briefing held at the Bangko Sentral.
Espenilla said some demand-side pressure might also be already feeding into inflation.
“All of these warrant a firm and timely monetary response. Therefore, let me say that the BSP is considering strong follow-through monetary adjustment at the next meeting of the Monetary Board in August,” he said.
But he said the pace and magnitude of policy tightening would necessarily be dependent on the comprehensive and rigorous assessment of all relevant data and forecasts.
He said Bangko Sentral would always stand by its primary mandate of promoting price stability conducive to a balanced and sustainable growth of the economy.
The inflation rate in June further 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 mainly 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 a year ago, bringing the average inflation in the first half to 4.3 percent, more than the upper limit of the target range of 2 to 4 percent for 2018.
The June inflation was faster than the Department of Finance’s 4.9 percent projection for the month and the target range of 4.3 percent to 5.1 percent by Bangko Sentral ng Pilipinas.
Espenilla earlier described the higher-than-expected June inflation as a “setback.” He said monetary authorities would review and update their situational assessment and forecast inflation path.
The peso closed at a fresh 12-year low of 53.53 against the US dollar on July 19, pulled down mainly by the country’s widening trade deficit. It was its weakest level in 12 years since the 53.55 on June 29, 2006.
ING Bank Manila senior economist Joey Cuyegkeng said earlier the peso was expected to depreciate further in the coming days as remittance growth would not be enough to offset the country’s widening trade deficit.
Cuyegkeng also 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.