BSP Governor Remolona: Higher August Inflation Not Enough Reason to Adjust Benchmark Rate
The Bangko Sentral ng Pilipinas (BSP) Governor, Eli M. Remolona Jr., announced that the higher inflation rate in August is not sufficient reason to make any changes to the current benchmark rate of 6.25 percent. Remolona made the statement during a press briefing on Thursday, September 14, at the 2023 AFI Global Policy Forum. He explained that the August inflation rate of 5.3 percent, which was higher than July’s 4.7 percent, could be temporary and that the price pressures responsible for the increase are expected to dissipate quickly.
Remolona stated, “If it is just an uptick caused by food prices, these kinds of supply shocks usually dissipate very quickly. If there are no further supply shocks, then there would be no need to hike the policy rate.” He also expressed confidence that the headline Consumer Price Index (CPI) will fall within the government target range of two percent to four percent by October of this year. However, he emphasized that simply hitting the target range is not enough; the BSP aims to be comfortably within the range for the year.
The BSP is resolute in its commitment to maintaining price stability and Remolona stressed that it is essential to assess whether the current policy rate is conducive to achieving this goal. He pointed out that supply shocks, such as food and energy price increases, are particularly detrimental to the poor. Remolona also acknowledged the year-to-date inflation rate of 6.6 percent, which remains above the target range. The BSP’s inflation forecast for 2023 is 5.6 percent, still above the target range, but it expects inflation to average within the range for 2024 and 2025 at 3.3 percent and 3.4 percent respectively.
Despite maintaining a “hold” position in monetary policy setting for the past three policy meetings, Remolona consistently signals a hawkish or tightening bias while inflation remains above the target. The benchmark rate has remained at 6.25 percent. This pause in the monetary tightening cycle has allowed the BSP to review market conditions following their aggressive rate hikes.
Remolona highlighted that there are upside risks to inflation, including transport fare hikes, higher wage adjustments, food supply constraints, and the El Niño phenomenon, which has caused drought in neighboring Asian countries like Vietnam, where the Philippines imports rice from. On the other hand, the BSP expects the growth momentum to remain intact in the near term, but recent demand indicators suggest a moderation in economic activity due to the impact of the BSP’s cumulative policy rate adjustments and weak global growth prospects.
Despite inflation slowing down, the BSP notes that domestic demand has responded to tighter monetary conditions. The BSP remains vigilant against potential second-round effects that could pose further risks to the inflation outlook.
