MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is ready to tighten monetary policy yet again should supply-side shocks linger especially after the onslaught of Typhoon Egay that could drive up inflation anew.
In a television interview with CNN Philippines late Thursday night, BSP Governor Eli Remolona said the recent typhoon would impact commodity prices, which could prompt the central bank to maintain its hawkish stance.
“That is why we are not ready to ease. We are not out of the woods because of these kinds of supply-side factors,” Remolona said.
“We continue to watch the data and we are going to be ready to raise rates if necessary as soon as Aug. 17, that’s our next meeting,” he said.
He made the statement before the latest inflation data came out yesterday morning.
Inflation eased for the sixth straight month and settled at 4.7 percent in July from 5.4 percent in June. This is the first time in 15 months that the headline rate fell below five percent.
While the inflation rate has been coming down, Remolona said formidable risks are still present.
“El Niño is beginning to hit our neighbors. They are experiencing drought and having trouble producing food that could affect us,” Remolona said.
“And even locally, transportation prices are going up, minimum wages are going up. We worry about the effects of these things on expectations,” he said.
As inflation picked up in 2022, the BSP tightened monetary policy aggressively and jacked up rates by 425 basis points over a one-year period to settle at 6.25 percent.
The US Federal Reserve, in its recent policy meeting, lifted rates by 25 basis points and remains open for another hike in September. The BSP has been on pause for two straight meetings amid indications that its previous monetary tightening is creating its impact on the economy.
“So far, expectations are well-anchored, but once we lose that anchor, then inflation begins to feed on itself and it becomes much harder to manage prices,” Remolona said.
“If the supply-side shocks are large enough and they are not compensated by weaker demand then, yes, we will have to raise rates again,” he said.
Meanwhile, the BSP chief downplayed the potential impact of a global recession on the Philippines, noting that the country is ready for it.
While a recession is not foreseen in the Philippines, such is expected in the United States, the world’s biggest economy, as inflation remains a concern and its labor market is still challenging.
China, the world’s second biggest global player and a major trading partner of the Philippines, is also experiencing a frail recovery and has yet to come back as strong as expected, as indicated in its gloomy housing and property sectors.
“There might be a mild recession and we think financial conditions will be tighter globally. But we are ready for it,” Remolona said.
“We are in good shape, better than we’ve ever been. We have huge amounts of reserve so when it comes to external shocks, we are ready,” he said.