Bangko Sentral says difficult to keep rates low amid rising inflation

Warren de Guzman, ABS-CBN News

Posted at May 18 2022 07:20 PM

MANILA - A day before the Bangko Sentral ng Pilipinas decides on whether to adjust or hold interest rates steady, the head of the central bank hinted that it was getting harder to keep rates low. 

The BSP Monetary Board is set to meet again on Thursday. It has kept the policy rate at a historic low of 2 percent since November 2020 to prop up the pandemic-battered economy. 

BSP Governor Benjamin Diokno cited rising inflation and the push for higher wages as factors the central bank will consider in its rate decision. 

“The space for maintaining accommodative stance has considerably narrowed," Diokno said noting that inflation in April quickened to 4.9 percent, which was near the high end of the BSP's forecast range. 

He added that “second round effects are starting to manifest.” 

“The recent approval of minimum wage hikes leaves the door open for other approvals pending since 2020, as the pandemic disrupted activities. At the same time, the Philippine economy exceeded expectations, growing 8.3 percent (in the first quarter)."

Diokno also noted that the global commodity prices will remain high due to the effects of the Russia-Ukraine conflict. 

“These developments strengthen the case for a withdrawal of monetary accommodation as inflationary pressures are likely to persist and disanchor inflation expectations.” 

The BSP earlier said it expects inflation to average 4.3 percent this year, before easing to 3.6 percent in 2023. But Diokno said an updated inflation outlook will be presented after the Monetary Board meeting on Thursday. 

Diokno also reiterated that any withdrawal of monetary accommodation will be done in “an orderly manner.” He earlier said that monetary policy “normalization” could begin in the second half of the year.

Central banks around the world, including the closely watched US Federal Reserve, have hiked interest rates to tame rising inflation. 

Some analysts meanwhile said the BSP should raise rates earlier. 


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