^

Business

Diokno hints at possibility of rate increase

Lawrence Agcaoili - The Philippine Star
Diokno hints at possibility of rate increase
During his weekly virtual press conference, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno hinted at the possibility of an interest rate increase in today’s rate-setting meeting of the Monetary Board.
STAR / File

MANILA, Philippines — The possibility of a rate hike for the first time in more than three years has increased as the space for accommodative monetary policy stance has narrowed significantly ahead of today’s rate setting meeting.

During his weekly virtual press conference, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno hinted at the possibility of an interest rate increase in today’s rate-setting meeting of the Monetary Board.

The last time the BSP delivered a rate hike was in November 2018 when it raised interest rates by 25 basis points, bringing the benchmark rate to 4.75 percent.

In 2018, the Monetary Board raised interest rates by 175 basis points from three percent due to elevated inflation brought about by soaring global oil prices.

Since then, the BSP has slashed interest rates by 275 basis points, including an aggressive 200-basis-point cut as part of COVID response measures in 2020, which brought the benchmark rate to an all-time low of two percent.

The central bank has maintained a loose and expansionary monetary policy stance for more than a year or since November 2020 when it delivered a surprise 25-basis-point cut to provide more traction to economic recovery from the pandemic-induced recession.

“The space of maintaining an accommodative policy stance has considerably narrowed,” the BSP chief told reporters.

Diokno, for instance, cited the quickening of inflation to 4.9 percent in April, settling near the higher end of the BSP’s monthly forecast of 4.2 to five percent and breaching its full-year target of two to four percent, from four percent in March.

“Inflation pressures in recent months have been linked mainly to supply-side factors, which we argue are still best addressed by targeted non-monetary interventions by the national government. Meanwhile, second round effects are starting to manifest,” Diokno said.

According to the BSP chief, the recent approval of the wage hikes in the National Capital Region and Western Visayas leaves the door open for further increases in other regions as wage petitions were deferred since 2020 due to the pandemic.

Diokno also took note of the stronger-than-expected gross domestic product (GDP) growth of 8.3 percent in the first quarter, faster than the 7.8 percent expansion in the fourth quarter and a reversal of the 3.8 percent contraction in the first quarter of last year.

“However, while the economy now appears to be on track, toward returning to its pre pandemic trajectory, there also remain significant downside risk to growth, including lingering threats of a resurgence in COVID infections and slower global economic activity,” Diokno said.

The Cabinet-level Development Budget Coordination Committee (DBCC) penned a faster GDP growth of seven to nine percent this year from 5.7 percent last year as the economy further reopens from strict COVID quarantine and lockdown protocols.

“These developments strengthen the case for a withdrawal of monetary policy accommodation as inflationary pressures now appear more likely to persist and threaten to this anchor inflation expectations. While the BSP stands ready to deal with this risk to inflation and economic growth, any adjustments in the monetary policy stance will be done in a timely manner so as not to disrupt the growth momentum while preventing price pressures from becoming entrenched,” Diokno said

Based on its last forecasts, the Monetary Board sees inflation averaging 4.2 percent this year and 3.6 percent next year. These projections are likely to be raised in today’s rate-setting meeting.

While the spillovers from the Russia-Ukraine conflict to the Philippines is likely limited due to weak economic linkages, Diokno said the country would experience headwinds in the form of slower global economic growth and higher commodity prices.

“Among these, the main channel through which the conflict affects the Philippines is through higher commodity prices, which pose upside risks to domestic inflation,” the BSP chief said.

BENJAMIN DIOKNO

RATE

Philstar
  • Latest
  • Trending
Latest
Are you sure you want to log out?
X
Login

Philstar.com is one of the most vibrant, opinionated, discerning communities of readers on cyberspace. With your meaningful insights, help shape the stories that can shape the country. Sign up now!

FORGOT PASSWORD?
SIGN IN
or sign in with