During the Philippine Economic Briefing in Pasay City, Bangko Sentral ng Pilipinas Senior Assistant Governor Iluminada Sicat said that, because of this anticipated three-month uptick, it is prudent to keep the monetary authorities’ key interest rate sufficiently tight.
"Indeed, we are anticipating that higher inflation rate will be observed from May to July,” she said. “But thereafter, we are projecting that inflation will revert back to the target range.”
The country’s latest inflation rate stands at 3.8% as of April.
Sicat said that the central bank expects inflation to fall back revert to the upper end of the government’s target range by yearend.
“That is precisely the reason why the BSP must be very careful not to bring down interest rate too early, or else we may not be able to address some of the upside [inflation] rates that we are seeing in the future,” she explained.
There has been growing expectations among market watchers of a looming central bank cut in its closely followed overnight rate that currently stands at 6.5%. This rate is closely tracked by lenders when pricing their commercial loans.
Higher interest rates help rein in inflation by deterring spending, but also has the twin effect of capping economic growth for the same reason.
“Managing inflation is a very good thing to achieve, because if we are able to manage inflation, we can bring down interest rates,” the BSP official said. “By bringing down interest rates, we can spur economic activity followed by increased employment.”
Sicat explained, however, that because of lingering “upside risks”, the central bank has decided to keep monetary policy settings at their current levels for now.
“Eventually, once all these actions of the BSP, together with the non-monetary policies of the national government, address the supply side [issues], we will be able to bring back inflation to the target range for 2024 and 2025 and I think that would be good for the economy,” she said.
Senior Reporter
