MANILA - Bangko Sentral ng Pilipinas Governor Benjamin Diokno on Tuesday said the central bank is "prepared" to take action to keep inflation expectations in check.

The BSP in March kept the key borrowing rate at 2 percent.

However, recent data suggests that inflation could remain elevated in the coming months, Diokno said during Tuesday's Philippine Economic Briefing.

Inflation hit the upper end of the government's 2 to 4 percent target in March as prices of oil and other basic commodities increased.

"Recent data, including the latest inflation number...suggest that inflation is likely to remain elevated in the coming months. So this means the BSP must be prepared to take action to prevent price pressures from broadening and becoming more entrenched which could translate to second round effects," he said.

"We're prepared to take preemptive action as needed if inflation expectations become at risk of becoming disanchored. At the same time," he added.

• Early interest rate hike seen to anchor inflation expectation: economist
• Inflation quickens to 4 percent in March, within govt target despite oil hikes

Analysts are expecting the BSP to start tightening interest rates by the second half of the year. Estimates suggest a hike of as much as 75-basis points. Diokno also earlier said policy normalization could begin in the second half.

But ING Manila Senior Economist Nicholas Mapa said an early interest rate hike in May's meeting could prevent an "aggressive" hike of up to 100-basis points in the second half.

Diokno also said a strong economic recovery could also pave the way for normalization.

"At the same time, signs of durable economic recovery will allow us to consider calibrated adjustments in our monetary policy stance, consistent with the eventual normalization of our policy setting," he said.

The Philippine economy emerged from recession in 2021 after growing by 5.6 percent, slightly exceeding expectations.

The central bank chief earlier said they are waiting for the right conditions to unwind the stimulus implemented during the pandemic.

Finance Secretary Carlos Dominguez said the national government has reduced its provisional advance arrangements with the BSP to P300 billion from P540 billion.

The amount will also be paid off by June 12, he said.

• BSP ready to unwind stimulus but waiting for right conditions: Diokno

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