Policy reversal unlikely – Guinigundo
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Sun, 03 Feb 2019 16:13:47 +0000
Monetary policy easing isn’t on the table as inflation remains higher than target, a senior Bangko Sentral ng Pilipinas (BSP) official indicated on Friday.
“You don’t immediately reverse course,” central bank Deputy Governor Diwa Guinigundo told reporters in response to a question whether a rate hike cut could be announced this Thursday.
“You have to give yourself a few more observations and make sure that what you intend to achieve is on the process of being achieved,” he added.
Analysts expect the BSP’s policy-making Monetary Board to refrain anew from adjusting key interest rates after last year’s five consecutive hikes — prompted by inflation breaching the 2.0-to-4.0-percent target starting March and hitting a nine-year high of 6.7 percent in September and October.
An easing in November led to a pause the following month and consumer price growth continued to slow in December. Projections that the trend had extended to January — official figures are scheduled to be released tomorrow, February 5 — have raised expectations that interest rates would be maintained when the Monetary Board meets on February 7.
Economists have said that December’s lower-than-expected 5.1-percent inflation means the rate could return to the target range in the first half — faster than expected.
“We want to make sure that we go back to the 2.0-4.0 percent inflation target… Yes, 5.1 percent inflation rate is a big decline … but it is still out of the target range…,” Guinigundo, however, said.
He explained that monetary authorities needed time to review how policy changes had worked through various channels.
“One or two observations cannot indicate that you can simply reduce the reserve requirement [ratio] or reduce the policy rate in order to reverse what you did in 2018. It will be bad economic policy,” he added.
Meanwhile, BSP Deputy Governor Chuchi Fonacier, in a January 25, 2019 letter to President Rodrigo Duterte, pointed to encouraging inflation readings in the last quarter of 2018.
“We have also observed two consecutive months of negative month-on-month inflation readings starting in November. This indicates that demand pressures have not built up significantly and that the supply-driven inflation process we saw in 2018 was not to be persistent,” she added.
Fonacier said monetary authorities were optimistic that inflation would continue to ease given last year’s monetary tightening as well as decisive government anti-inflation measures such as the liberalized importation of agricultural products.
“The early implementation of the rice tariffication law and the sustained administrative reforms to address supply-side bottlenecks, in particular, further strengthens our outlook that the inflation target will be achieved in 2019 and 2020,” she added.
During its last meeting in December, the Monetary Board trimmed its inflation forecast for 2018 to 5.2 percent from 5.3 percent, pointing out that the latest inflation forecasts showed a lower path over the policy horizon.
The 2019 and 2020 projections were also lowered to 3.1 percent and 3.0 percent, resepectively, from 3.5 percent and 3.3 percent.
ANZ Research and HSBC economists, meanwhile, believe the Monetary Board will keep key rates steady this Thursday.
“We expect the Bangko Sentral ng Pilipinas to maintain its current policy rate at 4.75 percent … as the economy adjusts to the monetary tightening undertaken in 2018,” ANZ Research economists Krystal Tan and Khoon Goh said in a report.
This view was shared by HSBC economists, who said “the focus at the upcoming BSP meeting will not be on further monetary tightening but rather on measures to support growth.”
HSBC expects gross domestic product growth to moderate to 6.0 percent this year, from 6.2 percent in 2018, amid higher borrowing costs, tighter domestic liquidity, and a continued delay in the implementation of the government’s 2019 budget.
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