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BSP hikes signal commitment to price stability

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THE CENTRAL BANK flexed its muscle last month through a second tightening move to signal that they wield a firm hand on economic stability, while previously flagged risks have now materialized.

The Bangko Sentral ng Pilipinas (BSP) raised policy rates by another 25 basis points (bp) during their June 20 meeting to show its commitment to price stability despite having long conceded to missing their 2-4% target band for inflation this year.

“[T]he Monetary Board believed that further policy action would enable the BSP to reinforce its signal on safeguarding macroeconomic stability in an environment of rising commodity prices and ongoing normalization of monetary policy in advanced economies,” read the highlights of the BSP’s rate-setting meeting last month.

Back then, policy makers cited various second-round effects from price pressures — which are brought about by rising crude oil prices and tax reform — which merited a “follow-through” policy response to rein in inflation expectations.

The BSP expects full-year inflation to clock in at 4.5% before easing to 3.3% by 2019. Inflation has averaged 4.3% as of end-June as it hit a fresh peak at 5.2%.

Cited as the “main upside risks” to inflation are additional wage adjustments and transport fare hikes due to the higher excise taxes on fuel under the Tax Reform for Acceleration and Inclusion (TRAIN) law.

The Land Transportation Franchising and Regulatory Board (LTFRB) approved a P1 provisional fare hike for public jeepneys on July 4 to cover routes in Metro Manila, Central Luzon and the Cavite-Laguna-Batangas-Rizal-Quezon region.

Earlier this week, the Labor department also announced that daily minimum wages will increase across nine regions, with the adjustments ranging from P9 to P56 depending on the area. Other regions including Metro Manila are expected to follow suit.

“The Monetary Board likewise reiterated its support for carefully coordinated efforts with other government agencies in implementing non-monetary measures to mitigate the impact of supply-side factors on inflation,” the central bank added.

Pending petitions for higher electricity rates, a proposed increase in the government’s buying price for rice farmers, and a faster-than-expected policy tightening in advanced economies are other key considerations, the BSP said.

Several observers are noting that another rate hike is needed during the BSP’s Aug. 9 meeting — which, if realized, will mark three consecutive tightening moves this year. — Melissa Luz T. Lopez