MANILA, March 26 (Bloomberg): The central bank of the Philippines, which kept interest rates steady this week but warned that inflation could exceed its target this year and stands ready to react to a accumulation of price pressures.
Bangko Sentral ng Pilipinas left the benchmark rate at a record high of 2%, as the 23 economists predicted in a Bloomberg survey. Its last rate move was a 25 basis point cut in November 2020.
The central bank also raised its inflation forecast for 2022 on Thursday to 4.3%, against its target of 2%-4%.
he Philippines, which has so far refrained from the Federal Reserve-led global rate hike cycle, is sending stronger signals that it sees a path to normalization as inflationary pressures mount.
“The Monetary Board sees the possibility of maintaining the BSP policy parameters in order to preserve the momentum of the economic recovery in a context of heightened uncertainty,” Governor Benjamin Diokno said, “even as it continues to develop its plans for the gradual normalization of its extraordinary liquidity measures.”
The peso gained 0.1% against the dollar to 52.33 at 3:16 p.m. in Manila.
Diokno added that the bank is ready to act to stop second-round inflation, but maintaining the economic recovery remains a priority.
He also reiterated that non-monetary measures are best to deal with price pressures, saying a reduction in bank reserve requirements remains on the table and could take place in the second half of this year.
Economic Planning Secretary Karl Chua said last week that the economy was still on track to grow within the government’s forecast of 7-9% despite recent headwinds including the Russian invasion.
The attack on Ukraine has fueled commodity prices and clouded the outlook for global trade and investment, with the Philippines seen as among the most vulnerable in Asia to soaring oil prices.
“Given the Philippines’ exposure to soaring global commodity prices, we expect inflation to accelerate rapidly in the coming months,” said Nicholas Mapa, senior economist at ING Groep NV in Manila. .
“A delay to the second half of the year could result in the BSP falling behind the curve as other global central banks, such as the Fed, may have hiked rates as much as 100 basis points.”
To help mitigate the impact of the crisis, economic planners aim to increase aid to sectors hit by rising prices at the pump, shorten the working week to reduce travel costs and reduce taxes on food imports.
The central bank last week raised its current account deficit outlook for this year by more than 60%, partly on expectations of more expensive energy imports. (Updates with details throughout. – Bloomberg