RCBC chief economist Michael Ricafort
MANILA – The Bangko Sentral ng Pilipinas (BSP) is expected to keep its accommodative stance this 2021 since inflation is expected to remain elevated most of the year.
In a report following the release of the April inflation rate on Wednesday, which was unchanged at 4.5 percent compared to the March 2021 level, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said monetary executives would remain on the lookout for any second-round effects of the high inflation rate before making any changes on the central bank’s monetary policy.
This after BSP’s policy-making Monetary Board (MB) slashed key policy rates to record-low of 2 percent for the overnight reverse repurchase (RRP) facility last year to help cushion the pandemic’s impact on the domestic economy and then kept this steady to date even as inflation breached the government’s 2-4 percent target band until 2023 last January.
Central bank officials said non-monetary measures, and not monetary policies, would best address the supply side factors that are causing the acceleration of the domestic inflation rate.
Ricafort said “the lack of additional funding for fiscal stimulus measures would still support the recent accommodative monetary policy stance/measures, at the very least keeping monetary policy relatively easy, such as maintaining the key local policy rate steady as seen recently, that keep borrowing costs relatively low.”
“Thus, for the coming weeks/months, any further monetary policy accommodation measures, especially any further cut in large banks' RRR (reserve requirement ratio) (from the current 12 percent), remain possible, especially if inflation stabilizes, as the economy needs all the support measures that it could get at this time largely due to the adverse economic effects of the Covid-19 lockdowns/pandemic,” he said.
While monetary actions are not the primary solution to address the elevated inflation rate, Ricafort said this would come in handy once signs of second-round effects, or if inflation has affected other goods and services, have come out “to prevent inflation from eating further the already reduced budgets of the most vulnerable sectors.”
In a report, ING Bank Manila senior economist Nicholas Mapa noted BSP Governor Benjamin Diokno’s statement of the transitory nature of the high inflation rate, with the latter pointing to the supply side-driven push on the rate of price increases.
He said “the recent executive order related to pork importation should help bring down pork prices in the near term while one-off adjustments to transport fares carried out in 2020 will soon wash out.”
“Meanwhile, economic activity remains subdued with the capital region in partial lockdown and the economy in recession. We expect BSP to remain on hold for the whole of 2021 to provide support to the economy and we believe inflation will begin to decelerate further in May as supply-side issues are addressed by supply-side remedies,” he added. (PNA)
