MANILA: Philippine central bank Governor Eli Remolona said monetary authorities will have to react aggressively to avoid falling behind the curve in taming price pressures spurred by the Iran war.
"This is a big supply shock, and a persistent supply shock,” Remolona said in an interview with local media One News aired on Friday (May 22). "We have to react aggressively in this kind of situation.”
The Bangko Sentral ng Pilipinas chief said the inflationary impact of the global oil crunch has quickly caused prices in food and transport, which the quarter-point increase in the policy rate last month sought to address early on.
Monetary authorities are considering raising the rate before the next policy meeting on June 18, he said. Remolona said they may also wait until the release of the latest inflation data on June 5 before making any decision on monetary policy.
"What we worry about is a policy mistake that leads to a de-anchoring of inflation expectations, which would tend to happen if we act too late. So that’s why we are trying to stay ahead of the curve,” the BSP chief said.
Remolona’s comments underscore how policymakers across the world have turned far more hawkish as they contend with a prolonged conflict in the Middle East that risks further stoking inflation. The governor had earlier said that he preferred a series of modest rate hikes to avoid disrupting the Philippines’ economic recovery.
Bank Indonesia earlier this week surprised with a half-point rate hike to intensify its currency defense, while warning of further inflationary risk from rising commodity prices. Majority of Federal Reserve officials have also warned the US central bank would likely need to consider raising rates if inflation continued to run persistently above target.
Remolona’s latest tone suggests the BSP will opt for a rate hike of at least 50 basis points in June, according to Emilio Neri Jr., lead economist at the Bank of the Philippine Islands.
"If May inflation prints above 8%, the sequencing matters less than the destination: an aggregate 150-200 basis point tightening cycle appears to be inevitable,” Neri said.
Remolona also said in his interview aired Friday that the peso’s decline to 63.50 against the dollar may be acceptable as long as it is measured and not inflationary.
Bloomberg Markets Live strategist Andre de Silva said the currency may get little reprieve even if the BSP signals the possibility of inter-meeting hikes.
"Such action would only underscore a reactive policy path that is still chasing inflation, contrasting sharply with its more decisive regional peers,” he said.
The Philippine central bank has said it will take necessary action to make sure inflation returns to its 3% target within a reasonable time after consumer prices soared 7.2% in April, the fastest clip in three years. - Bloomberg
