BSP sees faster September inflation, but off-cycle rate hike unnecessary

Ramon Royandoyan - Philstar.com
BSP sees faster September inflation, but off-cycle rate hike unnecessary
A woman walks past a street stall in Quiapo, Manila on July 5, 2022.
Jam Sta Rosa / AFP

MANILA, Philippines — The Bangko Sentral ng Pilipinas projected inflation likely accelerated further this month, but said an emergency rate hike is not warranted as of the moment despite a crashing currency that’s stoking a faster price growth.

In a statement on Friday, the BSP said it expects inflation to settle between 6.6-7.4% in September. If realized, this would be faster than 6.3% print recorded in August.

“Inflation for the month is expected to be driven by the increase in electricity rates and prices of key food commodities, as well as by the depreciation of the peso,” the central bank said in a statement.

The rising inflation trend in the past months was partly propelled by an explosion in consumer demand, brought about by the domestic economy’s reopening in the second quarter. This, while supply problems believed to be a byproduct of the pandemic persist and a crashing peso adds fuel to red-hot inflation by pushing up import costs.

But despite the weak peso’s impact on prices, BSP Governor Felipe Medalla told Bloomberg yesterday that an off-cycle rate hike “does not seem necessary” as of the moment. The last time the central bank held an emergency policy meeting was in July, where the Monetary Board hiked the benchmark rate by 75 basis points.

Instead, Medalla said the central bank has other tools to save the local currency. This week, the peso touched the P59-per-dollar level for the first time based on a dataset that dates back to 2001, as the rallying greenback continues its onslaught in currency markets.

READ: Cratering peso touches 59-level as aggressive Fed props up dollar

Likewise, the BSP governor said it does not need to increase the reserve requirement ratio since “there are more market friendly options.”

“Looking ahead, the BSP will continue to monitor very closely emerging price developments to enable timely intervention to prevent the further broadening of price pressures, in accordance with the BSP’s price stability mandate,” the BSP said.

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