Bangko Sentral chief sends hawkish signal
The Bangko Sentral ng Pilipinas (BSP) has room to raise interest rates to contain an oil-driven surge in inflation, Gov. Eli Remolona Jr. said, expressing hope that a meaningful rebound in government spending could help offset the drag on growth from tighter monetary policy.
“We also know that government spending will pick up in the second part of the year,” Remolona said in an interview with BusinessWorld in Washington. “And not only will it pick up, it will be better quality government spending.”
“So that will help growth, which makes our job a little bit easier,” he added.
Domestic inflation already accelerated to a nearly two-year high of 4.1 percent in March, slightly breaching the central bank’s target range. The government declared a national energy emergency—the first country to take such a step—as prices at the pump soared amid the Middle East crisis.
Remolona earlier said the Monetary Board had chosen to “err on the side of caution” when it kept the benchmark rate at 4.25 percent during a surprise meeting on March 26.
He said raising rates at that time would have done little to curb supply-side inflation stemming from the war in the Middle East. Instead, it would have only added strain to an economy still in the early stages of recovery from the fallout of a major corruption scandal, he explained then.
Policy setting on April 23
Policymakers expect to have a clearer view of conditions ahead of the Monetary Board’s scheduled meeting on April 23.
Looking ahead, the BSP chief said that the monetary authorities would avoid excessive rate hikes that could put too much pressure on economic growth.
“We don’t want to tighten by too much,” he said. “But there’s room to tighten, especially because the concern about growth is not as big as before, given what we think will happen on the fiscal side.”
Stagflation risk
In a note to clients, DBS Group Research said that the Philippines and Vietnam were expected to lead the tightening cycle in Asia should energy prices remain elevated.
“The Philippines faces a potential stagflationary shock this year, with growth witnessing a weak handover from last year, while inflation comes off a low base and peso remains under pressure,” the bank said.
