The decision of the US Fed, the most influential central bank in the world, to begin a tightening of its monetary levers has increased the pressure for the Bangko Sentral ng Pilipinas (BSP) to assess the local condition more closely.
Former Deputy BSP Governor Diwa C. Guinigundo expressed the view that the policy-making Monetary Board may have in fact already started its tightening bias when the BSP sold some of its US dollar holdings for pesos and mopped off the proceeds days later.
Its presence in the currency spot market in January and February this year helped stabilize the local unit, which has pushed past the P52 per dollar level. The weak peso adds liquidity to a market already challenged by inflation testing the high end of the target 2-percent to 4-percent range.
“So far, the peso has dropped to a 30-month low and broke through the P52 to a dollar level. This could be inflationary,” he said.
Also on Thursday, the BSP released the highlights of the meeting of the Monetary Board which kept unchanged in February the rate at which the BSP borrows from or lends to banks.
In that meeting, the seven-man MB said it continues to craft plans for the eventual normalization of its liquidity support when conditions allow their adoption. The MB will next meet on May this year and determine whether adjustments in the policy rates are warranted under prevailing circumstances.
The MB also noted that inflation expectations continue to be firmly tied to the 2 percent to 4 percent target although its outlook tilts slightly to the upside.
Still, Guinigundo noted that fuel price adjustments at the gas pumps has caused the Department of Energy to meet with the various oil companies to ensure against more surprise adjustments down the line.
The fuel price adjustments has bred calls for the suspension of the excise tax collection on oil imports, wage and transport hike proposals as well as government response in the form of direct transfers or subsidies to the most vulnerable sectors of the population.