Amid high inflation, Bangko Sentral ready to raise interest rates 'if needed'
MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) is ready to raise benchmark interest rates should there be a need to offset the impact of faster increases in prices of basic goods and services in the country.
But BSP Deputy Governor Diwa Guinigundo gave little indication that officials are worried about the higher-than-expected inflation rate, saying the central bank's medium-term outlook – or for 2019 – remains consistent with the government target of between 2% and 4%. (READ: EXPLAINER: How the tax reform law affects Filipino consumers)
"If indeed inflation is expected to revert to target path, then why move at this point?" Guinigundo told reporters on the sidelines of the 51st Asian Development Bank (ADB) meeting in Pasig City on Thursday, May 3.
"But if the sum of all considerations point to the need for the BSP to undertake some decisive action, we will not have second thoughts," he added.
Socioeconomic Planning Secretary Ernesto Pernia said he expects the inflation rate in April to be higher than the 4.3% recorded in March, due to rising oil and food prices.
Inflation refers to the rise in prices of basic goods and services, while interest rates are charged by lenders to borrowers. (READ: How a Fed rate hike impacts the Philippine economy)
When interest rates are raised, consumers tend to save as returns from savings are higher. With less disposable income being spent as a result of higher interest rates, inflation decreases.
The BSP Department of Economic Research expects the inflation rate in April to settle within the 3.9% to 4.7% range, while the Department of Finance (DOF) expects it to be at 4.5% in April. Under the 2006 base year, the DOF expects April inflation to be at 5.2%.
"Price movements, nevertheless, appear to be normalizing as shown by the declining month-on-month change: 0.7% in February to the 0.5% forecast in April," states an economic bulletin sent by the DOF to reporters.
Economists expect the BSP's Monetary Board to finally give in to inflationary pressures and raise interest rates by 25 basis points on May 10.
The Philippine Statistics Authority (PSA) is set to announce the April inflation rate on Friday, May 4.
"Let us see on May 4. If inflation is higher than 4.3%, then it means something. If it's lower, then we have to reassess all the numbers. We will keep on monitoring those numbers. We have to look at it [from] a medium-term perspective. What's next in 2019?" Guinigundo said.
The country's central bank has been keeping an accommodative policy stance through low interest rates in a bid to support the growing economy, which has registered growth for 76 quarters to date. – Rappler.com