Policy rate hike still possible in H2 with rising PH inflation

A policy rate hike in the second half of the year remains on the horizon for monetary authorities as the jump in inflation rate last March to four percent is expected to continue in the coming months.
The BSP’s key policy rates have been slashed by a total of 200 basis points in 2020 as part of the central bank’s measures to help buoy the domestic economy from the pandemic and the rates were again kept steady by the central bank’s policy-making Monetary Board (MB) during its meeting last month.
During the Philippine economic briefing on Tuesday, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the MB sees the current level of policy rates “appropriate given increased uncertainty surrounding the outlook for both inflation and growth.”
“However, latest data including the latest inflation number this March suggest that inflation will remain elevated in the coming months,” he said.
The rate of price increases in March rose to four percent after being steady at three percent in the previous two months.
The average inflation in the first quarter stood at 3.4 percent, within the government’s two to four percent percent target band.
The MB adjusted last March the central bank’s average inflation projection for this year from 3.7 percent to 4.3 percent, and the 2023 forecast from 3.3 percent to 3.6 percent.
With expectations of further acceleration of inflation rate in the coming months due in part to the impact of Russia’s invasion of Ukraine, which resulted to upticks in prices of oil and other commodities in the international market, Diokno said “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.”
“For this reason, the BSP is keeping a watchful eye on emerging developments to ensure that the monetary policy stance remains in line with our primary mandate of price stability. We’re prepared to take pre-emptive action as needed if inflation expectations become at risk of becoming disanchored,” he said. (PNA)

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