MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is likely to take a pause in its tightening cycle as the government expects non-monetary measures to address the persistent price pressures on commodities.
In a statement yesterday, Finance Secretary and Monetary Board member Benjamin Diokno said the central bank may lean toward a pause in its next policy meeting in May.
This is in contrast to analysts’ view that the BSP could pencil in another small rate hike in two months’ time.
As widely expected, the BSP last week dialed down its tightening cycle with a 25-basis-point rate hike, bringing the overnight reverse repurchase rate to a 16-year high of 6.25 percent.
The BSP effectively matched the US Federal Reserve’s rate increase delivered the previous day.
“The BSP has done enough, in my view. It has increased its benchmark interest rate by 425 bps from 200 bps last year. That’s the highest policy rate increase in this part of the world,” Diokno said.
“The adjustment’s full impact has yet to be absorbed by the economy, considering that monetary policy works with a lag, oftentimes a long lag,” he said.
The former BSP governor maintained that monetary policies have done enough considering that “monetary policy is not the only game in town.”
At this point, Diokno argued that non-monetary measures to ease inflation could address the problem more effectively.
Last month, headline inflation slightly eased to 8.6 percent from the 14-year high of 8.7 percent in February.
Given such inflation print, the BSP lowered its full-year inflation forecast slightly to six percent from 6.1 percent earlier. This is seen easing further to 2.9 percent by 2024.
Diokno noted that the recently approved creation of an inter-agency price monitoring group to address inflation should bear fruit in the near term.
“The decision to import goods in short supply, such as rice, meat, sugar and others based on science rather than ad hoc [will help],” Diokno said.
“World oil prices are also declining and could fall below BSP’s benchmark levels,” he said.
The finance chief is likewise banking on the likely appreciation of the stable peso as well as the continued expansion of remittances, call center receipts, tourism income and foreign direct investment inflows.