Metro Manila (CNN Philippines, December 7) — A reversal in the central bank’s tightening cycle would be “premature,” signaling monetary authorities to remain hawkish as the last rate-setting review for the year nears, the Bangko Sentral ng Pilipinas (BSP) said Wednesday.
\”The risks are still there. We have to assess the situation. I think it’s premature to say that we will start to ease,\” BSP Governor Eli Remolona said.
The policymaking Monetary Board is set to meet on Dec. 14 as it wraps up a year that saw the key interest rate rise by a total of 450 basis points to 6.5%, the highest in the region.
But inflation has cooled for two straight months in November, although still outside the central bank’s target zone.
Remolona said the rate hikes have already been working their way into the financial system but the lags are \”somewhat long\” or not as fast as they have hoped.
\”We wish they [the monetary policy lag] were shorter but that’s work we still have to do we have to improve the transmission mechanism of monetary policy,\” he said.
The central bank wants to be certain that inflation would stay comfortably within its target range, and when it is \”comfortable about that, then we can start to think about easing,\” the BSP chief added.
Risks to inflation remain, but mostly driven by supply shocks that could negatively impact inflation expectations that similarly can create another round of rising prices.
\”We are a country that’s prone to supply shocks. And normally you’d think that supply shocks would dissipate so you don’t have to do anything in the face of supply shocks,\” Remolona said.
\”But the supply shocks often lead to expectations,\” he added. \” If they’re large enough, if they’re frequent enough, then they lead to expectations of higher inflation, and that leads to second-round effects. That’s what we worry about.\”
