The Bangko Sentral ng Pilipinas (BSP) is ready to tighten monetary policy further to rein in prices and support the currency if needed, Deputy Governor Diwa Guinigundo said.
“If the peso depreciation will impinge on our ability to maintain the stability of prices, we will not hesitate to sustain our vigilance and continue to tighten monetary policy,” Guinigundo said in an interview in Bali on Wednesday. “Our primary mandate is price stability and we intend to do just that.”
Bangko Sentral ng Pilipinas has delivered 150 basis-points of interest-rate increases since May, among the most aggressive in Asia. Policy makers are battling surging prices and a weakening currency with the Philippines among the hardest hit in Asia by an emerging-market rout.
Inflation accelerated to 6.7 percent in September, the fastest pace in more than nine years, mainly on food and fuel prices. That could have been the peak as measures including the rate hikes start to take effect, Guinigundo said.
The central bank’s target is for annual inflation to average 2 percent to 4 percent in 2019 and 2020. Inflation could go back to the target range next year once a bill that liberalizes rice imports is passed and implemented, Guinigundo said.
Tax increases on fuel, sugary drinks and cigarettes implemented at the start of the year have boosted prices. Shortages in the supply of rice, the nation’s staple food, and a more than 7 percent slump in the currency this year, further exacerbated price pressure.
Guinigundo said he remained optimistic about the country’s economic growth prospects, citing increasing productivity and the government’s infrastructure spending. Gross domestic product growth slowed to a three-year low of 6 percent in the second quarter, with the government set to report third-quarter data on Nov. 8.
“Even if you have the impact of the 150-basis points tightening of monetary policy, I think we should have some cushion or counterweight in terms of government spending on infrastructure,” he said.
President Rodrigo Duterte has started a $170-billion program to upgrade the nation’s dilapidated airports, roads and bridges.
The central bank expects greater stability in the currency in the fourth quarter as remittances from overseas Filipinos come in ahead of the holidays.
Asked to comment on the perception that officials acted too late and now have to do more to curb inflation, Guinigundo said market participants and economists should look at the bigger picture
“This is a manifestation of tyranny of the market” as monetary policy can’t be used to solve supply issues, he said.(Bloomberg)