Immediate policy easing ‘imprudent’ – Guinigundo
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Sun, 24 Mar 2019 16:12:58 +0000
It would be unwise to immediately ease monetary policy settings, a senior Bangko Sentral ng Pilipinas (BSP) official said, given “wild card” risks to inflation.
“El Niño could be prolonged while oil prices seem to be acting up again.” central bank Deputy Governor Diwa Guinigundo told reporters late last week.
“These are the wild cards, that is why it would be difficult to reduce the reserve requirement ratio (RRR) and the policy rates,” he added.
“[An easing] would be imprudent.”
With regard to oil prices, meanwhile, Gunigundo said Dubai crude futures were indicating an upward price trend.
“It needs careful assessment before actually considering an actual adjustment on policy rates and the RRR,” he reiterated.
The Agriculture department last week said that dry spells and droughts caused by El Niño had already destroyed P1.3 billion in farm damage, up from the P464.27 million reported a week earlier.
Easing inflation prompted the BSP’s policymaking Monetary Board to keep key interest rates unchanged last week. After a 2018 surge — blamed largely on higher oil prices and food supply issues — that prompted five successive rate hikes, officials said consumer price growth was now expected to settle within the 2.0-4.0 percent target this year.
With inflation already down to 3.8 percent in February and the economy also expected to slow this year given El Niño, a budget impasse and the US-China trade war, some analysts now expect BSP rate cuts to be ordered as early as May.
But with year-to-date inflation still above target at 4.1 percent, analysts have also said the Monetary Board would wait until consumer price growth settled firmly within the target band.
HSBC economist Noelan Arbis is among those that expect monetary authorities to await further data before reversing policy.
“As we noted previously, we believe it would be most prudent for the BSP to wait until inflation is more firmly within its target before engaging in any monetary accommodation,” Arbis said in a commentary.
He noted that both headline and core inflation still remained near the upper end of the target band, which suggested that price pressures remained elevated.
Core inflation was at 3.9 percent in February.
Moreover, Arbis said the El Niño cycle could again put pressure on food prices. Ongoing droughts will be the primary factor during the first half while the stronger storms that typically follow the end of an El Niño will also affect prices.
“That said, the case to provide greater monetary accommodation is warranted as long as inflation continues to moderate as expected,” he acknowledged.
With this, Arbis said HSBC expected a 100-basis point (bp) cut to the 18-percent RRR before a 25bps cut to the policy rate in the second quarter.
The Monetary Board’s next policy meeting will be on May 9, to be followed by another on June 20.
“All in all, we expect 300bp of cuts of the RRR and 50bp of cuts to the policy rate in 2019,” Arbis said.
The Monetary Board’s last four policy meetings for the year will be held on August 8, September 26, November 14 and December 12.
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