Central bank faces ‘complex’ policy environment

THE MONETARY BOARD (MB) is gearing up for an earlier rate-setting meeting next week as it faces a “fairly complex” mix of faster inflation, a weakening peso and robust economic growth.
The policy-making body of the Bangko Sentral ng Pilipinas (BSP) will meet on Wednesday, June 20 — a day earlier than the regular Thursday policy reviews done every six weeks.
BSP Governor Nestor A. Espenilla, Jr. described the one-day adjustment as purely “logistical” due to “tight” schedules of central bank officials. He clarified that the change will not affect the regular schedules of succeeding policy meetings.
“The MB will be evaluating a very rich and broad range of information at its policy meeting next week. Recent developments on inflation and economic activity are key inputs, but these are certainly not the only consideration,” Mr. Espenilla told reporters in a mobile phone message.
Mr. Espenilla made the remarks when asked to comment on the continued depreciation of the peso, which weakened further on Wednesday to a fresh 12-year-low to P53.23 per dollar.
Some analysts have attributed the local currency’s weakness partly to uncertainty over the BSP’s next moves, coupled with uncertainty over policy decisions of the United States Federal Reserve and the European Central Bank due this week.
Faster inflation remains a key concern locally, following a 4.6% reading in May that was the quickest pace seen in at least five years. Price stability is the BSP’s main mandate, with five-month inflation now at 4.1% which remains past the 2-4% target range for 2018.
“We’ll be examining closely all the potential drivers of future inflation through the various transmission channels as affected by global developments, expectations formation and uncertainty. It’s a fairly complex environment that we need to navigate,” Mr. Espenilla said about their upcoming monetary policy assessment.
The BSP hiked rates by 25 basis points (bp) in its May 10 review — the first time it did so in nearly four years — as inflation continues to breach the target, citing the need to temper inflation expectations in the market.
BSP Deputy Governor Diwa C. Guinigundo has said that the 25bp increase in rates last month should be “sufficient” to bring inflation back to target next year, even if monetary authorities have conceded to missing the 2018 target at a projected 4.6% full-year average.
Some economists see at least one more rate hike from the BSP later this year, which they said will be needed to keep at bay “second-round” inflation pressures from expected higher minimum wages and public transport fares. — Melissa Luz T. Lopez