Bangko Sentral ng Pilipinas Governor Eli Remolona said Thursday he does not see any reason to raise the policy interest rate despite the faster inflation in August.
The Philippine Statistics Authority earlier reported that inflation rose to 5.3 percent in August from 4.7 percent in July.
“It was just an uptick” that was caused by higher food prices, Remolona said during a briefing at the sidelines of the 2023 Global Policy Forum of the Alliance for Financial Inclusion.
“But these kinds of supply shocks dissipate usually… If there is no further supply shock beyond that uptick in August, then it won’t be necessary to hike the policy rate,” Remolona said.
“In deciding about the policy rate, we must be comfortable being within the target range. So far, we’ve been hit by supply shocks which are especially harmful to the poor, and these are food and energy prices,” Remolona said.
“I think we should hit the target range by October if there are no supply shocks… We should be comfortably within the target range for the year,” he said.
The policy-setting Monetary Board paused for the last three meetings after inflation eased in the past six months from a peak of 8.7 percent in January 2023. Inflation then picked up in August, on faster increases in the prices of food and agricultural products that could be traced to the impact of recent weather-related disturbances.
The BSP raised the policy rates by a total of 425 basis points to 6.25 percent between May 2022 and March 2023, before taking what it called a “prudent pause” in the last three meetings.
The Monetary Board on Aug. 17, 2023 kept the overnight borrowing rate at 6.25 percent for the third time this year. The interest rates on the overnight deposit and lending facilities were also retained at 5.75 percent and 6.75 percent, respectively.
It said the decision took into account the lackluster 4.3-percent gross domestic product growth in the second quarter, which brought the first-half expansion to 5.3 percent, below the 6 percent to 7 percent target range for the year.
The latest baseline projections continued to show a return to inflation target in the fourth quarter of 2023 despite a generally higher path for inflation relative to the previous forecast from the monetary policy meeting in June, reflecting mainly the impact of higher international oil prices.
Average inflation in 2023 is seen to reach 5.6 percent, while the average inflation forecasts for 2024 and 2025 now stand at 3.3 percent and 3.4 percent, respectively.
Remolona said, however, the BSP is prepared to respond as necessary to safeguard the inflation target, in keeping with its primary mandate to ensure price stability. The Monetary Board will hold its next policy meeting on Sept. 21, 2023.