BSP rate hike will not work on current inflation: analyst

ABS-CBN News

Posted at Feb 11 2021 01:15 PM | Updated as of Feb 12 2021 05:23 AM

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MANILA - The Bangko Sentral ng Pilipinas is not likely to raise rates on Thursday to temper inflation, an analyst told ANC's Market Edge. 

Joey Roxas, president of Eagle Equities, said the current spike in inflation was "cost-push" or driven by rising costs from producers.

Interest rate hikes meanwhile are seen to tame inflation by reeling in demand from consumers and businesses awash in cash. 

"By raising interest rates you will increase costs further. It will not work," Roxas said. 

Inflation, which had been picking up since the last quarter of 2020, hit a two-year high of 4.2 percent in January, as supply constraints boosted the price of meat and vegetables. 

The BSP slashed rates by a cumulative 200 basis points last year to historic lows, at a time when the economy suffered the worst contraction on record due to the pandemic. 

The BSP also has little left in its arsenal to prop up the economy as it has lowered rates "far enough" Roxas said. But the BSP can use "moral suasion" on banks, Roxas said, meaning that the BSP can ask banks to increase lending. 

Banks have been reluctant to increase lending over worries about incurring more bad loans as the pandemic continues to batter businesses. 

The BSP is set to make its monetary policy announcement at 4 p.m. today.