BSP urged to continue monetary tightening

MANILA, Philippines - The International Monetary Fund is urging the Bangko Sentral ng Pilipinas to continue its policy tightening measure to ensure inflation remains within target next year.

 “The trend of tightening monetary policy considering uncertainties on rising inflation pressures should be continued,” Changyong Rhee, director at the IMF’s Asia & Pacific department, said in a briefing yesterday.

The BSP has raised key policy rates by a total of 50 basis points to ensure inflation will remain within the two to four percent target next year. Analysts have earlier cautioned that the 2015 target band may be breached as this is narrower than the three-to five-percent set for this year and upside risks to inflation continue to increase.

Inflation has so far averaged 4.4 percent in the eight months to August, with risks tilted to the upside. The central bank earlier this month said price pressures continue to emanate from further increases in the cost of food due to tight supply conditions and pending petitions for adjustments in power rates.

Rhee said that food prices, which make up the bulk of the country’s consumer price index (CPI) basket, are worrisome as they are being affected both by supply side and demand factors.

 “For many other advanced economies, inflation can be controlled by monetary policy alone but here, the inflation rate... (is a product of) monetary policy as well as the supply constraints led by infrastructure, and import and export policies,” Rhee said.

 “But having this (two to four percent) target (next year), I hope it can give pressure to the other ministries... to expedite the structural reforms which helps reduce the inflation pressure,” he said.

The IMF official noted that while other countries are worrying about deflation, the Philippines has been hounded by pressures driving inflation further up as the country’s economy continue to expand. The IMF has kept its forecast for Philippine economic growth at 6.2 percent this year and 6.5 percent the next year.

 “Overall, the Philippines at this moment is one of the stellar performers ... in the ASEAN (Association of Southeast Asian Nations) and the global front,” Rhee said.

The economy has grown by six percent in the first half, below the government’s target of a 6.5-to 7.5-percent full-year expansion. Last year, the economy grew by a faster-than-expected 7.2 percent.

Rhee said the “well-above five percent growth rate” achieved by the Philippines is a rare case in the global front. He cited the government’s structural reforms including governance reforms, the fiscal reforms, and sound macroeconomic fundamentals the country boasts of.