The Bangko Sentral ng Pilipinas (BSP) will continue to be on a tightening bias for longer as it remains focused on curbing high inflation, according to senior officials.
“We’re carefully watching the risks and remain hawkish. Before we consider any relaxation on the policy stance, we need to be very confident that inflation has been restored to the target,” said BSP Deputy Governor Francisco G. Dakila Jr.
Dakila was recently in Morroco attending meetings with investors on the sidelines of the International Monetary Fund-World Bank annual event earlier this month.
For his part, Monetary Board member V. Bruce J. Tolentino reiterated that to combat inflation, it will take both monetary and non-monetary measures to bring it down to the target range of two percent to four percent.
“Managing inflation is the responsibility not only of the central bank,” he said. “We share it with the rest of the government, particularly the fiscal authorities, especially at a time when issues driving the inflation rate are supply side-driven,” he added.
Both Tolentino and Dakila issued this statement on Tuesday, Oct. 24, after their Marrakech trip. While in Morocco, they met with some investors including Bank of America Securities, Barclays, and Standard Chartered Bank.
Since inflation is still high, BSP Governor Eli M. Remolona Jr. himself has already signalled to the market in recent weeks that there will be at least two policy rate hikes before the year ends.
The next Monetary Board policy meeting is on Nov. 16 and Dec. 14. He has also said that an off-cycle rate hike is possible depending on the latest available data.
As of its last Monetary Board policy meeting in September, the BSP forecasts average inflation of 5.8 percent in 2023, 3.5 percent next year and 3.4 percent in 2025.
In a latest survey of economists, the market expects a higher 2023 inflation of 5.9 percent. The BSP noted that this was higher compared to the previous poll result of 5.5 percent.
Based on the highlights of the Sept. 21 Monetary Board policy meeting, the BSP said the private sector analysts expect inflation to accelerate anew due to recent supply-side shocks domestically and overseas.
The BSP said the market “also anticipate further upside risks to the inflation outlook, due mainly to supply disruptions, particularly from the adverse impact of weather disturbances and trade restrictions.”
Meanwhile, the BSP said inflation expectations have increased “but remain well within the target range for 2024 and 2025” of two percent to four percent.
The BSP also noted that the inflation expectations for 2024 and 2025 also increased to 3.7 percent from the previous survey of 3.5 percent, and 3.5 percent from 3.4 percent, respectively.
The BSP said they adjusted the 2023 and 2024 projections to “reflect the spillovers from weather disturbances, rising global crude oil prices, and the recent depreciation of the peso.”
It continued to note that the balance of risks to the inflation outlook remains skewed towards the upside.
The major upside risks to the inflation outlook are the potential impact of further adjustments in transport fares and electricity rates. The potential adverse impact of El Niño is also an upside risk.
Analysts also listed other risks to inflation such as high prices of basic goods, including food, oil and services due to supply factors; and second round effects, emanating particularly from higher transport fares and wages.
The downside risks, meanwhile, are the lagged effect of the BSP’s successive monetary policy tightening, which is expected to temper inflation, said the BSP.
To contain rising inflation and ease the exchange rate volatility, the BSP has raised the benchmark rate by a cumulative 425 bps from May 2022 until March 2023.
With these policy rate increases, the BSP is still confident that by November or December this year, elevated inflation will return to the target range barring any unexpected supply shocks.
As of end-September, the average inflation rate is at 6.6 percent, still way above the BSP target band of two percent to four percent for 2023.