MANILA, Philippines — Inflation continued to spiral out of control, leaping to a fresh five-year high of 5.2 percent in June, intensifying calls for the Bangko Sentral ng Pilipinas (BSP) to further raise interest rates.
BSP Governor Nestor Espenilla Jr. said the higher-than-expected June inflation outcome was a setback as the central bank projected the growth in the consumer price index (CPI) would settle within a range of 4.3 to 5.1 percent.
The Department of Finance (DOF), on the other hand, expected a 4.9 percent inflation for June.
“We will review and update our situational assessment and forecast inflation path. This will shape the strength and timing of our next monetary policy response to firmly anchor inflation expectations,” Espenilla said.
Inflation averaged 4.3 percent in the first half, exceeding the two to four percent target set by the BSP for 2018.
The rising inflationary pressures are being blamed on higher oil and rice prices as well as the impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
Economists and analysts expect a third rate hike from the Monetary Board next month due to the higher-than-expected inflation in June as the price of oil is now nearing $75 per barrel, the peso has hit a fresh 12-year low after piercing the 53 to $1 level amid the widening trade deficit, the recently approved P1 provisional fare hike for jeepney as well as the rising prices of rice and other agricultural products.
Trinh Nguyen, senior economist for emerging Asia at Natixis, said the BSP is behind the curve as inflation accelerated past the target anew in June.
“The BSP needs to do more to cool an overheating economy. Not only do we have a loose monetary policy, fiscal policy is also lax. Trade deficit is wider. I am urging the BSP to hike its interest rates,” Nguyen said.
ING Bank senior economist Joey Cuyegkeng said the high inflation point for June would likely require further monetary policy response as early as the August meeting.
“Real policy rate is deeper in the red indicating that a more aggressive economic policy response would be needed. Real policy rate is now -1.7 percent from -0.4 percent only in January,” Cuyegkeng said.
ANZ Research, on the other hand, now expects the BSP to deliver another 25 basis point rate hike next month instead of its earlier forecast of November.
Nomura Securities economist Euben Paracuelles said the central bank may deliver another 25 basis point rate hike in August as inflation is seen to average five percent in the second half from 4.3 percent in the first half.
“We continue to forecast headline CPI inflation to average 4.6 percent this year. We expect headline inflation to peak only around August or September, before gradually easing from there,” Paracuelles said.
Monetary authorities have been criticized for slashing the level of deposits banks are required to keep with the central bank, releasing around P190 billion in additional funds to the financial system while inflation was rising.
The BSP first reduced the reserve requirement ratio to 19 percent from 20 percent in March 2, injecting P90 billion into the financial system followed by another reduction to 18 percent in June 1 further releasing P100 billion into the system.
Espenilla wants to reduce the ultra high RRR to single-digit levels in tandem with various market reforms.