THE CENTRAL BANK will not hesitate to take “decisive” action should inflation maintain its ascent, with signs pointing that price increases now cover a wider range of goods, top officials said.
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. said latest observations bared that inflation is becoming broader than initially expected.
“What we react to is whether it’s spreading and it is affecting expectations. And our reading, based on the latest data, it seems to have spread somewhat,” Mr. Espenilla told reporters on the sidelines of the Asian Development Bank annual meeting yesterday.
“These are the elements that we are measuring. We would like to assess all of these come May 10 and make the appropriate decision.”
Inflation has maintained its ascent in the past few months, with March’s 4.3% reading under the 2012 base year proving to be fastest in at least three years. The pace of price increases likely quickened further this April, with the BSP forecasting a 3.9-4.7% range — a rate already beyond the 2-4% target band.
The Department of Finance, in an economic bulletin yesterday, said it expects inflation to have logged at 4.5% last month due to the uptick in prices of food and “sin” products.
On the sidelines of the ADB meeting, Socioeconomic Planning Secretary Ernesto M. Pernia also said the April inflation figure is “higher than March,” noting that “oil prices have been going up consistently for the past several months.”
Mr. Pernia added that the depreciation of the peso supported the overall rise in prices, as well as the higher excise taxes introduced in January.
The BSP’s Monetary Board will review their policy stance on Thursday, which will come a week after the release of April inflation data and on the same day as first-quarter gross domestic product data.
Policy makers have kept their stance unchanged since September 2014, with the view that manageable inflation and robust domestic economic activity render no need for a fresh monetary stimulus.
The BSP’s rate-setting meeting also comes a week after the United States Federal Reserve voted to keep borrowing costs steady, following a rate hike introduced in March.
Mr. Espenilla said the Fed’s move “creates more certainty and predictability” as far as the global financial markets are concerned.
BSP Deputy Governor Diwa C. Guinigundo said separately that the Fed’s decision to remain on hold demonstrates the “gradual” pace of policy tightening in the US, which he noted will be a “very important input” to the BSP’s own policy meeting next week.
Domestic inflation remains a bigger concern, the central bank official added, referring to the April print to be published by the Philippine Statistics Authority today.
“If it is higher than 4.3%, then it means something. If it is lower than 4.3%… then we have to reassess all the numbers,” Mr. Guinigundo told reporters.
“The other argument of course is what do you expect to happen in 2019? If indeed inflation is expected to revert to the target path, then why move at this point.”
The central bank expects full-year inflation to average 3.9% this 2018 before settling back down to three percent next year, factoring in the “transitory” impact of the tax reform law which pushed the costs of select goods higher.
“But let me just clarify: if the sum of all of these points of considerations point to the BSP to undertake some decisive action, we will not have second thoughts on this because maintaining price stability is our primary mandate and we are going to adhere to that mandate of the BSP,” Mr. Guinigundo added.
In another development, the central bank will reduce its offering under the term deposit facility to P60 billion on Wednesday from P90 billion previously. Mr. Guinigundo said this factors in banks’ inclination to hold more cash ahead of the May 14 holiday for the nationwide barangay and youth council elections.
Auction volumes have been trimmed to P30 billion for seven-day term deposits, P20 billion for 14-day instruments, and P10 billion under the 28-day tenor. — Melissa Luz T. Lopez with a report from Elijah Joseph C. Tubayan