MANILA, Philippines — Monetary policy tightening alone is not enough to temper runaway inflation in the Philippines, British banking giant HSBC said in a report published Thursday, a day after the release of higher-than-expected August inflation print.
Inflation rose to a new over nine-year high of 6.4 percent in August, increasing the odds of another interest rate hike to discourage bank lending and cool down consumer demand that could have pushed up inflation.
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The August inflation figure exceeded July’s 5.7 percent and topped the Bangko Sentral ng Pilipinas’ worst case scenario estimate for the month. In the first eight months, inflation averaged 4.8 percent, well above the central bank's 2-4 percent target range for the year.
The BSP has lifted its benchmark rate by a cumulative 100 basis points in a bid to fight inflation, but economists have said that much of the inflation uptick is beyond the control of the central bank since it concerns supply constraints.
According to HSBC economist Noelan Arbis, higher commodity prices in the Philippines are still supply-driven.
“This means that monetary tightening alone is not enough to bring inflation down to target,” Arbis said, adding that legislative measures like the elimination of quantitative restrictions on rice imports are necessary.
“Temporary subsidies on certain food products may also help ease inflationary pressures, especially for the poorer population,” he also said.
Inflation has been hitting the poor the most as prices of rice, a Filipino main staple and pivotal political commodity in the Philippines, continue to climb due to the reported shortage of cheap rice.
As inflation heats up, the country’s economic development cluster recently urged the Senate to pass the Rice Tariffication Bill within September. The measure, if finally enacted into law, could slash the retail price of the crop by P4-7.
READ: Rice tariffication: What it is and how it can ease inflation
Global crude oil prices have also risen this year, translating to higher local pump prices.
Source: tradingeconomics.com
In the same commentary, HSBC’s Arbis said the central bank would remain under pressure next year as the second tranche of excise tax increases takes effect in January.
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“These are likely to spur higher inflation expectations, and the fact that headline inflation is now likely to breach the BSP’s 2-4 percent target for the second consecutive year in 2019 means that the BSP must remain on guard for further monetary tightening,” Arbis explained.
“We expect the BSP to react more proactively to the tax increases in January with another 25bp in 1Q19, taking the reverse repo rate to 4.75 percent,” he added.