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Bangko Sentral’s policy stance remains hawkish despite easing inflation

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Monetary authorities remain hawkish, or ready to raise interest rates next week if needed, despite the easing inflation, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said.

“Hawkish means we could either pause [or] we could hike on Dec. 14 [monetary policy meeting],” Remolona said during the BSP-hosted Christmas dinner for central bank reporters Wednesday evening.

Central bankers are described as “hawkish” when they are in support of the raising of interest rates to fight inflation.

The November inflation eased to a 20-month low of 4.1 percent from 4.9 percent in October on slower increases in the prices of food and non-alcoholic beverages. This was the slowest figure since it settled at 4 percent in March 2022.

This brought the average inflation from January to November to 6.2 percent, still above the target range of 2 percent to 4 percent for the year.

Remolona said risks remained, and monetary authorities were assessing the situation. He said it was premature to say that “we will start to ease.”

He said the Monetary Board’s decision on monetary policy would be based on data such as inflation and gross domestic product growth.

“We do our own analysis. It is data-based… We are a country that is prone to supply shocks. Supply shocks lead to expectations. If frequent enough, it would lead to expectations on higher inflation and that leads to second-round effects. So we monitor inflation expectations. We try to keep expectations anchored, and that is the way we hope to mitigate second round effects,” he said.

Remolona also downplayed the possibility of another off-cycle monetary policy move, saying the Monetary Board could wait for Dec. 14—the scheduled monetary policy meeting and the last for 2023—before making a decision.

“The easing is premature. We want to make sure that we are within the target range comfortably… When we are comfortable about that, then we can start to think about easing. The economy is still very strong and robust,” he said.

“We don’t want to make unnecessary tightening. We just wanna make just enough tightening so that we will be in the target range,” he said.

He said the latest numbers suggested that by early 2024, inflation could fall below 3 percent, but the base effects would push it up to around 4 percent by the middle of the year, then settle within the range in the latter part.


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