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Appropriate timing

Central bank expects inflation to settle close to the midpoint of the target range in 2022 and 2023, pencilling 3.3 and 3.2 percent projection, respectively.



Surely, the ongoing pandemic has brought uncertainty in the local economy, keeping the market on the sidelines, waiting for additional prospects of better business conditions.

While the timing for the reversal of monetary policy stance proved to be a hot topic among private economists, the Bangko Sentral ng Pilipinas (BSP) reiterated its position to carefully monitor developments and prudently wait for the appropriate timing to recalibrate rates.

BSP Governor Benjamin Diokno earlier said that reversing their current accommodative stance too early in the game might be more costly rather than doing it later.

“To me, the harm that tightening monetary policy too soon exceeds the harm of moving too late, given that the Philippine economy is at its nascent state of economic recovery,” Diokno explained.

Still, the BSP chief stressed that monetary authorities will decide on the proper timing of its policy change based on evidence that warrants it to do so and won’t be influenced by market analysts and opinion makers.

Some private economists argue that a mild recalibration is needed, given the rise in import demand among other factors, while others share the same view that the near-record low key policy rate of 2 percent should be kept as it is until the end of the year.

Diokno likewise pointed out that a number of central banks in the world began to raise their rates as a result of increasing inflation pressures.

Nevertheless, those who opted to wait for further market developments before deciding to unwind their respective monetary policy rates are greater than those who already reversed their stance.

The country’s inflation, which was expected to remain elevated until October before easing in the last two months of the year, won’t need any support from the central bank to arrest it, Diokno explained.

“Since inflation pressures are coming from the supply side, there appears to be no justification for monetary intervention,” he said.

Also, the central bank chief reiterated his outlook that inflation remains transitory, despite the possibility for such to settle above the upper end of the government’s 2 to 4 percent target.

Dennis Lapid, director for the Monetary Policy Sub-Sector at the BSP, said that they have revised their inflation outlook for the year from 4 percent to a much higher 4.4 percent.

Yet, the central bank expects inflation to settle close to the midpoint of the target range in 2022 and 2023, pencilling 3.3 and 3.2 percent projection, respectively.

Like what other top state economists said, Diokno stressed on the Philippines’ position of strength in terms of going against the pandemic and its ability to recoup its lost growth momentum.

“The BSP is confident that the Philippines is well-placed to recover with a possible tightening of global financial conditions,” he said.

Latest data from the banking regulator showed risks to the inflation outlook shifted towards the upside for the rest of the year but remained broadly balanced for both 2022 and 2023.

According to the central bank, upside risks could emanate from pressures on international commodity prices, potential effects of weather disturbances and possible prolonged recovery from the African Swine Fever outbreak among others.

Diokno recently said the rise in inflation is not a “cause for worry” as items in the consumer basket that grew below 2 percent far outweigh those that rose above 4 percent.