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BSP hints of ‘strong follow through’



There is increasing pressure for the monetary authorities to hike the policy rates another 25 to 50 basis points when the policy-making Monetary Board of the Bangko Sentral ng Pilipinas (BSP) meets again on 27 September to combat buoyant headline inflation.

Deputy BSP Diwa Guinigundo would neither acknowledge nor dismiss the likelihood of another round of adjustments at the Philippine Economic Briefing the country’s economic managers jointly hosted on Tuesday.

But he hinted broadly of the kind of response the BSP is crafting at the moment, saying the monetary authorities have to “deliver a strong rhetoric about having a strong follow through” to the decision ramping up the policy rates 50 basis points higher some five weeks earlier.

This was when the rate at which the BSP borrows from or lends to banks was scaled up 50 basis points to four percent and six percent, respectively, as headline inflation accelerated further to 6.4 percent in August.

The decision was premised on ensuring that price pressures and inflation expectations are clearly anchored. Guinigundo said public judgment on savings, investments and prices, especially when these are not well anchored tend to become self-fulfilling events.

Still, he would not telegraph exactly what the monetary authorities have in mind when they set the policy rates again next week: “Whether it’s 25 basis points or 50 basis points, that will be determined by the data that will come out between now and the 27 September meeting of the Monetary Board.”

He took the opportunity to remind everyone that the principal mandate of the BSP is ensuring price stability across the $314 billion Philippine economy.

In the same event, Finance Secretary Carlos Dominguez III said the Philippines remains strong and expected to be among the top performing economies in the region this year, likely sustaining its growth momentum with the implementation of policy and infrastructure reforms and firm and decisive political leadership.

According to Dominguez, the economy has all the elements for sustained, vigorous and inclusive growth based on such indicators as investments having risen sharply in the first half of the year, for instance.

“Our enterprises, anticipating a growing domestic market, are importing more capital goods. In the short term, this may put pressure on the exchange rate and gross international reserves. But in the longer term, this is indicative of strong capacity building,” he said.

Notwithstanding the elevated inflation and food supply issues in the first semester, Dominguez said the accelerated pace of policy and infrastructure reforms has kept the Philippines among the region’s fastest-growing economies, which boosted investor sentiment as reflected in the surge in foreign direct investments (FDI) by almost half to $5.8 billion in the first six months.

Dominguez pointed to the country’s increasingly investment-led growth, following a 27.4-percent jump in capital formation as President Duterte’s “Build, Build, Build” initiative continued to gain momentum.

Confidence in fiscal management has been reinforced further, he said, by the successful passage into law of the first package of the CTRP, which has led to a 21-percent increase in total revenue collections over the past seven months while putting more money into the pockets of 99 percent of Filipino taxpayers via hefty cuts in their personal income tax payments.