Monetary board member says BSP ready to pause tightening

By Melissa Luz T. Lopez
Senior Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) may pause its tightening moves should month-on-month inflation show deceleration, a member of the policy-making Monetary Board said, noting that the impending removal of rice import quotas should help prod overall price increases back to target in 2019.
Monetary Board Member Felipe M. Medalla said the central bank may “take a pause” should the pace of price increases soften starting this month. But he did not discount the possibility that commodity prices could still pick up faster.
“We are yet to see the data on what we will do the next policy meeting. If there are signs that inflation is already abating, as measured by the month-on-month (reading), then we may take a pause, but that’s too early to tell at this point,” Mr. Medalla said during the press briefing of the Development Budget Coordination Committee (DBCC) yesterday.
The Monetary Board will hold its seventh review for the year on Nov. 15.
Policy makers have raised benchmark interest rates by a cumulative 150 basis points (bp) since May as the central bank sought to rein in inflation expectations at a time that prices of basic goods have been surging beyond the central bank’s 2-4% target band for full-year 2018. The BSP raised rates in four consecutive meetings, including a back-to-back 50bp increase in August and September, as inflation was seen breaching the target range even in 2019.
Inflation hit a fresh nine-year-high 6.7% in September, pushing the year-to-date pace to five percent. The BSP foresees 2018 inflation averaging 5.2% and by 4.3% next year, both piercing the ceiling of the target range.
Mr. Medalla said monetary authorities are watching month-on-month inflation as it shows the “momentum” of price movements. He explained that a month-on-month pace of 0.3% or less would be more in line with the original target, but noted that eight of the past nine months have clocked in a faster pace.
September’s month-on-month seasonally adjusted pace clocked in at 0.8%, coming from 0.9% in August.
The Monetary Board member noted that there may be a chance that inflation could still log faster this month, versus the central bank’s expectation that the prices may have already peaked last month.
“Month-on-month is almost certainly going to be lower, but year-on-year, there is no guarantee that it will be lower,” Mr. Medalla added when pressed further.
Still, he said that October or even November inflation could match last month’s pace.
The implementation of the rice tariffication law — which would replace a minimum quota scheme with a regular duty scheme — will be instrumental in tempering inflation, since it is expected to slash rice retail prices by about P7 per kilogram. “The real big item is rice,” Mr. Medalla said, noting that the measure will bring down inflation by 0.7 percentage points. “Without rice tariffication, average inflation year-on-year will be higher than four percent in all likelihood.”
The measure has been approved by the House of Representatives and which is expected to clear the Senate soon after lawmakers return from their Oct. 14-Nov. 12 break.
The DBCC also expects the peso to average P52-55 to the dollar in 2019, making key imports like oil more expensive.