BSP to take ‘all necessary policy action’ after noting rising inflationary pressure

THE Bangko Sentral ng Pilipinas (BSP) acknowledged on Friday that price pressures are broadening amid the “firmer indication” of second-round effects, as inflation accelerated anew to 6.4 percent in July this year. 

In his statement following the government’s announcement of the inflation acceleration in July, BSP governor Felipe Medalla reiterated that amid the still-rising inflation, the Central Bank is “prepared to take all necessary policy action” to adequately tame inflationary pressures.

“The BSP recognizes the broadening of price pressures amid the emergence of second-round effects, including the approved wage and fare hikes as well as elevated inflation expectations,” Medalla said. 

“The BSP is prepared to take all necessary policy action to bring inflation toward a target-consistent path over the medium term and deliver on its primary mandate of price stability. The upward adjustment in monetary policy rates in May and June and the off-cycle adjustment in July should help moderate inflation expectations,” he added. 

The governor said latest data show that the risk to the inflation outlook is tilted on the upside for 2022 and 2023, but is broadly balanced for 2024. 

Upside risks over the near-term continue to emanate from the higher global non-oil prices driven by the war between Russia and Ukraine and from the potential second-round impact of higher oil prices on the prices of goods and services. 

Domestic food prices also were seen as upside risks due to shortages in the supply of several key food items. 

Meanwhile, the governor said a slower-than-expected global recovery due to tighter global monetary policy conditions and the continued uncertainty from the Covid-19 pandemic continues to present a downside risk to the outlook.

In a research analysis after the inflation data announcement, Bank of the Philippine Islands (BPI) economists said inflation has yet to reach its peak for the year, especially if key commodity prices remain elevated.

“We are still yet to see the peak in inflation near 7 percent in October should global price pressures from oil, energy and food remain substantial,” BPI said.

 “Sustained Peso weakness along with declining rice output from world’s largest exporters may also pose a threat to efforts to contain inflation,” the bank added.

Medalla earlier assured markets of a rate hike in their August 18 meeting, to the tune of either 25 or 50 basis points.

The governor also reiterated BSP support for the carefully coordinated efforts of other government agencies in implementing non-monetary interventions to mitigate the impact of persistent supply-side factors on inflation.