The March inflation rate went up to 8.5 percent and oil prices have skyrocketed to record levels but foreign banks are particularly cautious about pulling the monetary triggers until indicators become more definite.
According to Wick Veloso, treasurer at the Hongkong and Shanghai Banking Corp. Ltd, there are early indications of demand-side pressure brought about by an increase in economic activity fueled by remittances from overseas Filipino workers (OFWs).
"In a way, the noise is not all noise," Veloso said. "There is increased activity on the demand side of inflation, but it is not loud enough to really push the hand of the MB."
The MB has been under pressure to adjust its policy rates since the US Federal Open Market Committee (FOMC) started its calibrated adjustment of US interest rates.
The FOMC is scheduled to hold its next policy meeting in May when the Fed was expected to increase its rate by another 25-basis points.
"If I were the MB, why not wait until after the next Fed meeting? I think the MB can afford to wait until May, the demand pressures are not so critical that we have to do something immediately," Veloso said. "If we increase our rates now, we might be shooting ourselves on the foot."
The market has begun speculating on a possible adjustment of either the BSP’s policy rates, its liquidity reserve requirements for banks or both–particularly since oil and crude prices have not stopped climbing in the last two weeks.
Should the MB increase its rates at all, Veloso as well as other market sources said the adjustment would not be more than 25 basis points–just enough to restore the interest rate differential between its rates and US policy rates.
At least some quarters of the International Monetary Fund, in particular, have been pressing for the MB to wield its monetary policy tools, saying that there was enough pressure in the core inflation rate to warrant such an action.
Officially, however, the IMF still supported the BSP’s decision to wait for clearer signs of demand-side pressures before actually taking action.
BSP Assistant Governor Diwa Guinigundo admitted there was an increase in core inflation but he said this was due to administrative gap in the timing of the importation of corn for feedstock that had the effect of pushing up the prices of feed-dependent commodities such as poultry and meat.
The MB itself said importation and not monetary policy was the more effective tool against price surges because much of the pressure is still related to actual supply of goods.