BSP seen to maintain accommodative policy

THE BANGKO SENTRAL ng Pilipinas (BSP) is expected to maintain a loose monetary policy to support the economy’s recovery as inflation risks are expected to subside by 2022.

“We will maintain an accommodative monetary policy because we know the (spike in) inflation is temporary. In fact, because of the base effects, the prices now are high, the prices next year will be low relative to that price,” Monetary Board member Felipe M. Medalla said at an online webinar on Saturday.

“So by next year, we will be very close to 3% [inflation]. And that’s the reason the monetary policy will remain accommodative despite the fact that current inflation is above 4%,” he added.

The policy-setting Monetary Board is scheduled to meet on June 24. It maintained the key policy rate at a record low of 2% during its May 13 meeting.

The consumer price index rose by 4.5% for the third straight month in May. While this was slower than the two-year high of 4.7% in February, it exceeded the central bank’s 2-4% target range.

The BSP expects inflation for 2021 and 2022 to reach 3.9% and 2.8%, respectively, within target but much quicker than the 2.6% in 2020. Year to date, inflation stood at 4.4% as of May.

“If the new measures succeed, we still have a 50% (chance) of being within target. As to the effect on the monetary policy, it [inflation] will not [affect it],” Mr. Medalla said.

The uptick in inflation in recent months was caused by the pork supply shortages due to the African Swine Fever outbreak.

To boost supply, the government raised the minimum access volume quota for pork imports, and lowered the tariff rates of pork imports for one year.

The Philippine economy also continues to face challenges stemming from the coronavirus infections, renewed lockdowns, and slow pace of vaccination.

“My guess is we must see a recovery that’s quite solid before we withdraw accommodative monetary policy,” Mr. Medalla said.

Gross domestic product (GDP) shrank by a worse-than-expected 4.2% in the first quarter.  In 2020, GDP contracted by a record 9.6%.

The government expects the economy to grow by 6-7% this year.

BSP Governor Benjamin E. Diokno has said earlier this month that they only see a “sustainable recovery” for the country maybe by the second half of 2022, which is also when they could look at further adjustments to monetary policy. He said the BSP will have “a very carefully crafted, managed disengagement strategy” when unwinding policies implemented during the pandemic. — L.W.T. Noble