By FIL C. SIONIL
Economists and market analysts are widely anticipating for the Bankgo Sentral ng Pilipinas (BSP) to aggressively tighten its key interest rate policy tomorrow, a move that has two edge effect – tame inflation pressures and smoothen peso depreciation.
In my conversation with bank treasurers and market players, my overall sense is that the monetary authorities are already behind the curve in using interest rates with the ugly head of inflation showing up in September, spiking to 7.2 percent, the highest since March 2023.
Uptick in inflation clearly signals that price pressures had become deeply entrenched and broad based, taking into consideration the salary hike and increase in transportation.
And still, the wage increase is insufficient to absorb the rising cost of living.
One particular view that I heard, which was slightly unsettling was the BSP carried out “baby steps” in their policy decisions, inadequate even, to be instep with broadening macroeconomic threats.
Evidently, the inflation path moving substantially out of the BSP’s two percent to four percent range assumption for the year.
Now, is the BSP really behind the curve or was just right in taking its time to fully assess the number before deciding to throw a big blow of a 50 basis points increase as most asssumed.
Prior to this year’s crunch, the market accused the BSP of being behind the curve was in 2022 following the eruption of the Russia-Ukraine war that sent global energy prices soaring.
Remember that despite domestic inflation breaching its assumption, then-BSP Governor Benjamin E. Diokno maintained an ultra-loose pandemic-era policy rate of 2.0% until late May 2022 to prioritize economic growth.
Are we taking the same path? Is the BSP behind the curve?
“Not yet,” says Diwa Guinigundo, former BSP deputy governor for monetary and economic sector, citing that the “flip is quite recent, as the negative shocks are just emergent.”
Personally, DepGov Diwa believed the BSP will move big tomorrow. “BSP is not exactly behind the curve. It would be if it chooses baby steps this Thursday.”
Global Source Partners, where DepGov Diwa with his former colleague retired BSP Assistant Governor Wilhelmna Manalac are Philippine-based analysts, backed bank executives and market players expectation for a 50-basis-point increase in the BSP policy rate “merits serious consideration.”
The big move will “help anchor inflation expectations and contain the risk of further price increases, while recognizing the limits of monetary policy in addressing supply-side pressures.”
That said, the common consensus is for the BSP to deliver its fourth consecutive interest rate hike for the year. Now, will it be 25 basis points or will it be a jumbo hike?
What’s your bet?
for comments and feedback, email me at sionil731@gmail.com
