Bangko Sentral chief flags August rate hike
Inflation likely hit new five-year high of 5.3% in July – Finance dept
Monetary authorities could order another policy rate hike next month given the peso’s weakening and demand-side pressures on inflation, the chief of the Bangko Sentral ng Pilipinas (BSP) indicated on Friday.
“[L]et me say that the BSP is considering strong follow-through monetary adjustment at the next meeting of the Monetary Board in August,” central bank Governor Nestor Espenilla Jr. said in his opening remarks during a press briefing for the Second Quarter BSP inflation Report.
The central bank’s policymaking Monetary Board, which will hold its fifth meeting for the year on August 9, raised key interest rates in May and June to address above-target inflation. The consecutive 25-basis point adjustments brought the BSP’s overnight borrowing, lending and deposit rates to 3.5 percent, 4.0 percent and 3.0 percent, respectively.
“While we believe that our fundamentals remain solid and healthy, sustained pressures on the peso could adversely affect inflation expectations,” Esepenilla said, adding that “some demand side pressure may also be already creeping into inflation.”
“All of this require a firm and timely monetary response. The pace and magnitude of policy tightening will necessarily be dependent on our comprehensive and rigorous assessment of all relevant data and forecasts.”
The Philippine peso, described as Asia’s worst-performing currency this year, fell to a new 12-year low on
Thursday, closing at P53.53 against the dollar. It regained a couple of centavos to end Friday at P53.51:$1.
Inflation, meanwhile, has yet to peak. The pace of consumer price growth hit a fresh five-year high of 5.2 percent in June, well over the BSP’s 2.0-4.0 target and spurring talk that monetary authorities would be forced to hike interest rates anew, possibly as early as August.
“We still see the potential peaking of inflation around third quarter this year…,” Espenilla said, reiterating the BSP’s official view.
The central bank chief said any action taken would be “consistent with our long-standing disciplined approach inflation targeting. We stand by our primary mandate of promoting price stability conclusive to a balance and sustainable growth of the economy.”
Finance sees 5.3% inflation
Also on Friday, the Finance department said inflation could have risen anew last month.
“The inflation forecast for July is 5.3 percent year-on-year or 0.17 percent month-on-month” it said in an economic bulletin issued ahead of the release of official inflation data on August 7.
“Note that month-on-month declined from 0.6 percent in June to 0.17 percent in July,” the department stressed.
It said that prices of food and non-alcoholic beverages likely rose by 6.12 percent year-on-year on the back of higher prices of rice (4.8 percent) and vegetables (11.85 percent).
Month on month, however, inflation for this category possibly fell to 0.04 percent.
Non-food inflation, meanwhile, could have risen to 4.25 percent from a year earlier given higher prices of clothing and footwear (2.31 percent), housing, utilities and fuels (5.11 percent), electricity, gas and other fuels (10.77 percent), health (2.76 percent), communication (0.42), recreation and culture (0.72 percent), and restaurants and miscellaneous services (3.58 percent).
Month on month, a 0.22 percent decline was projected.
Price growth for alcoholic beverages and tobacco products likely remained in the double digits — 21.43 percent from 20.78 percent a year earlier and month-on-month rising to 0.99 percent from 0.59 percent.
The department also noted that the price of diesel rose to P46.88 per liter from P46.91 in Metro Manila, while gasoline prices increased to P57.51 per liter from P57.84.
Manila Electric Co.’s per kilowatt-hour (kWh) rate for households consuming 200 kWh per month, meanwhile, increased to P10.19 in July from P9.88 a month ago.
Economic managers have raised this year’s inflation forecast to 4.0-4.5 percent, higher than the Bangko Sentral’s 2.0-4.0 percent target, in recognition of latest developments.
Expectations still elevated
In its inflation report, meanwhile, the Bangko Sentral maintained that average inflation was likely to exceed 4.0 percent in 2018 but return to target next year.
Inflation expectations remain elevated for 2018 and the likelihood of possible second- round effects from ongoing price pressures has risen, it added, with the balance of risks still tilted to the upside.
Tagged as the likely drivers of higher inflation were potential wage adjustments and transport fare hikes due to higher excise taxes on petroleum products and other key commodities, as well as faster-than-expected monetary policy rate hikes in the US.
Slower global economic growth and proposed rice industry reforms, on the other hand, are the key downside risks to the inflation outlook.
The Philippines also continues to feel the weight of supply side pressures as reflected in the uptick in the prices of certain food items and domestic petroleum products, with average headline inflation using the new 2012-based consumer price index series to 4.8 percent during the second quarter from 3.8 percent a quarter ago.
Year-to-date, inflation averaged 4.3 percent.
Core inflation, which strips out volatile food and fuel prices, increased to 3.8 percent in the second quarter — higher than the quarter- and year-ago rates of 3.0 percent and 2.5 percent, respectively.
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