BSP to maintain preemptive stance

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is expected to maintain its preemptive stance by further tigthening its monetary policy through higher interest rates as inflation is expected to breach the higher end of the three percent to five percent target set by the central bank for the third quarter.

BSP Deputy Governor Diwa Guinigundo said monetary authorities would closely monitor factors affecting inflation including the level of liquidity on the back of the continued inflow of foreign capital into emerging markets, the domestic output as measured by the gross domestic product (GDP) growth in the first quarter, credit growth, and exchange rate.

“We will continue to monitor inflation outlook, expectations and output dynamics, and any signs of excess liqudity spilling over to asset markets. The first quarter GDP will also be considered in the next policy meeting,” Guinigundo stressed.

The next policy rate setting meeting of the BSP is scheduled on June 16.

“We will be preemptive if we see signs of additional pressure, four weeks to five weeks from now. We shall undertake appropriate monetary action,” Guinigundo stressed.

The BSP has so far raised interest rates by 50 basis points this year as a preemptive move amid escalating global oil prices. This brought the overnight borrowing rate to 4.50 percent and the overnight lending rate at 6.50 percent.

The central bank raised interest rates by 25 basis points last March 24 and by another 25 basis points last May 5 as a preemptive move to keep inflation expectations well anchored.

Had monetary authorities kept interest rates steady amid surging oil prices in the world market, the country’s inflation forecast would have gone up to 5.6 percent this year and to 4.2 percent next year.

On the domestic output, Guinigundo pointed out that the country’s GDP growth is expected to remain robust in the first quarter on the back of strong demand.

Socioeconomic Planning Secretary Cayetano Paderanga said the country’s GDP likely grew between 4.8 percent and 5.8 percent in the first quarter of the year.

The BSP official added that inflation likely remained benign in May on the back of stable peso as well as improving supply indicators particularly on key commodities such as rice, corn, wheat, and meat products.

Inflation shot up to a one-year high of 4.7 percent in April from 4.3 percent in March on the back of surging oil prices in the global market. This brought the average inflation in the first four months of the year to 4.2 percent from 4.3 percent in the same period last year.

Authorities see inflation breaching the higher end of the 3 percent to 5 percent target within the third quarter of the year due to rising oil prices as well as second round effects such as higher wages, transport fare hike, among others.

“We may breach upper end of target in the third quarter but the whole year indicates an average inflation of within the 3 percent to 5 percent target,” he warned.