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Interest rate hikes contain inflation — BSP

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Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. said Monday the use of appropriate monetary policy was able to contain inflation.

Remolona said in his presentation during the Philippine Economic Briefing in Iloilo City that the Philippines, like the rest of the world, was hit by supply shocks that triggered inflationary pressures in the past few months.

“These are the kind of shocks that we have never really seen before—oil, semiconductors, fertilizers—these pushed inflation [to a peak of] 8.7 percent in January 2023,” Remolona said.

“This is true not just for us, but also the rest of the world… Finally with the right kind of monetary policy, inflation eased to 4.1 percent as of November 2023,” Remolona said.

Data showed that the November 2023 inflation was the slowest in 20 months, or since it settled at 4 percent in March 2022. It also fell within the 4.0 percent to 4.8 percent range for November projected by the BSP.

Inflation averaged 6.2 percent from January to November, above the target range of 2 percent to 4 percent for the year.

Remolona said supply shocks usually affect inflation expectations, which result in second-round effects such as increase in wages and services.

“We stick to the 2 to 4 percent inflation target. It minimizes second-round effects. That anchors inflation,” he said.

He said last week monetary authorities remained hawkish, or ready to raise interest rates this week if needed, despite the latest inflation number showing that it was slowly returning to the target range.

“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.

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

Remolona said the Monetary Board’s decision on monetary policy was based on data such as inflation and economic growth.

He 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.

The BSP raised the policy rate by 25 basis points to 6.5 percent in an off-cycle move on Oct. 26, but paused in the succeeding meeting, following the better-than-expected GDP growth in the third quarter and the easing of inflation in October.


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