BSP Warned Against Easing Inflation Fight for Growth

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) must remain dedicated to controlling inflation and avoid ending its rate-hiking cycle too early, according to GlobalSource Partners. GlobalSource Partners analyst Diwa Guinigundo noted that the peso’s decline to the 62-per-dollar level suggests the market doubts the BSP’s commitment to tackling inflation. READ: BSP extends inflation fight with fresh rate hike Guinigundo pointed out that real interest rates are still negative despite the BSP raising its key rate to 5 percent while inflation remains above 6 percent. “The issue is not simply whether the BSP should raise, hold or eventually cut its policy rate,” Guinigundo said. “The more fundamental question is whether monetary policy is sufficiently restrictive in real terms to bring inflation back to target and keep expectations firmly anchored.” Since April, the BSP has raised its policy rate by a total of 75 basis points. Gov. Eli Remolona Jr. called the recent hike a “preemptive” measure against risks from El Niño and potential wage increases. Policymakers now project inflation will average 6.1 percent this year, still above the BSP’s 3-percent target. READ: BSP sees inflation holding above target in July Guinigundo emphasized that the upcoming October policy meeting will be crucial for the BSP and warned against prematurely declaring the tightening cycle over due to weak growth. “This is not an argument for indiscriminate tightening or for ignoring growth. It is an argument for recognizing the hierarchy of responsibilities,” he said. “Asking monetary policy to compensate for weaknesses elsewhere risks creating the worst of both worlds: weak growth and persistent inflation.” /pai