By Melissa Luz T. Lopez
Senior Reporter
THERE IS ROOM for the Bangko Sentral ng Pilipinas (BSP) to pause on policy tightening with inflationary pressure showing signs of waning, said one senior central bank official who nevertheless said the economy appears capable of absorbing higher interest rates.
Asked if policy makers could hold off further policy tightening on Thursday, BSP Deputy Governor Chuchi G. Fonacier replied: “I think there’s room for that, but I can’t really be precise about it.”
“There’s that possibility for a pause or 25 basis points (increase) on Thursday,” Ms. Fonacier said on the sidelines of the Chamber of Thrift Banks meeting on Monday.
The Monetary Board will hold its seventh rate-setting meeting for the year on Thursday in the wake of back-to-back 50bp increases in August and September. Benchmark rates now stand 4-5% as a result of a cumulative 150bp rate hike from the BSP since May. The key policy rate is now at 4.5%, the highest in nearly a decade.
A BusinessWorld poll among 11 economists last week resulted in a toss-up, with six betting that authorities will keep rates steady while five said a 25bp hike would still be on the table.
Ms. Fonacier said that preliminary data from early November show that the overall rise in prices of some items in the theoretical basket of basic goods widely used by households — the consumer price index (CPI) — has been “decelerating.”
She added that the recent recovery of the peso against the dollar may also help temper inflation.
Inflation clocked in at 6.7% in October, steady from September’s nine-year high which capped a sustained ascent since January. Food continued to lead the rise in prices of basic goods due to supply bottlenecks, although economic managers have said that recent interventions made by the state have started to take effect.
Month-on-month inflation likewise eased to 0.3% last month from 0.9% in September, which some have taken as a sign that inflation momentum is “moderating.”
Ms. Fonacier added that another factor being considered by monetary authorities is whether a hike would still be appropriate in the face of economic growth that has been slowing in the wake of four consecutive tightening moves introduced since May.
Economic growth clocked in at a softer 6.1% in the third quarter versus the upward-revised 6.2% climb in April-June as private consumption growth cooled to 5.2% year-on-year from 5.9% the previous quarter. Growth averaged 6.3% for the first three quarters, below the scaled-down 6.5-6.9% government target for 2018.
“I think the economy can still afford a hike of 25bp maybe at most, but there’s also this possibility of a stay-put or maintain because some numbers in the CPI basket are decelerating,” Ms. Fonacier said.
Monetary Board Member Felipe M. Medalla had said that the central bank may consider halting its tightening cycle amid signs that inflation is “abating.”
Last week, BSP Governor Nestor A. Espenilla, Jr. said October inflation shows that price pressures are “finally moderating,” prompting authorities to assess “if there’s still need for further policy rate adjustments.”
The central bank expects full-year inflation to clock in at 5.2%, well above the original 2-4% target band. Even the 2019 inflation target is at risk with the latest projection set at 4.3%, although BSP officials have said the impending liberalization of rice importation this year should prod inflation back on target in 2019.

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