Given that the government anticipates non-economic actions to ease the ongoing price increases on products, the Bangko Sentral ng Pilipinas (BSP) may be expected to suspend its cycle of tightening.
This was what Finance secretary Benjamin Diokno was quoted to have said in a press statement when he opined that he thought the central bank can decide to hold off on raising interest rates at its upcoming bank meeting with the monetary board in May.
Sec. Diokno, who is also a member of the Monetary Board, added that “non-monetary measures to ease inflation can address the problem more effectively,” including those already adopted by fiscal authorities.
Another modest rate increase predicted
Analysts’ predictions that the BSP would plan another modest rate increase in two months are at odds with the secretary’s statement.
Just last week, the BSP had increased rates by 25 basis points as has been widely anticipated, effectively increasing the overnight reverse repurchase rate to 6.25 percent — a 16-year high.
The rate hike announced by the US Federal Reserve a day before was practically matched by the BSP.
Believing that monetary policy is not the only game in town, the former BSP chief insisted that monetary policies have achieved enough.
“I believe the BSP has accomplished enough. From 200 bps last year, it has hiked its benchmark interest rate by 425 bps,” Finance Secretary Diokno explained. The benchmark interest rate of 425 bps was one of the largest policy rate hikes ever in this part of the region.
Banking on the Philippine peso’s potential appreciation
Given that monetary policy frequently has a considerable lag, he claimed that the economy has not yet fully absorbed the adjustment’s full impact.
At this juncture, Diokno said he believes that lessening inflation through non-monetary means may solve the issue more successfully.
After reaching a 14-year high of 8.7 percent in February, headline inflation slightly decreased to 8.6 percent last month.
Given this inflation print, the BSP marginally reduced its full-year inflation prediction from 6.1 percent to 6%. By 2024, this is anticipated to ease even more, to 2.9 percent.
In order to combat inflation, Diokno said that the recently approved formation of an inter-agency pricing monitoring group should show results soon.
“Importing scarce goods like rice, meat, sugar, and others based on science rather than ad hoc [will help],” added Diokno. He stated that “world oil prices are also falling and may drop below the BSP’s benchmark levels.”
The head of finance is also counting on the steady peso’s potential appreciation, as well as the ongoing growth of remittances, contact center receipts, tourism revenue, and foreign direct investment inflows.