There had been contrarian views on the subject but on Monday Finance Secretary Benjamin Diokno told reporters he favors keeping the policy rates of the Bangko Sentral ng Pilipinas where they are at the moment.
“I’m for a pause, that’s my opinion. Inflation is going down, huge (foreign exchange) reserves, the current account deficit has expanded but it’s financially manageable and that’s because of the improved economy, infrastructure spending,” he said.
“So over all, there’s no reason why we should increase the rates,” he reiterated.
The next rate-setting meeting of the Monetary Board is on Thursday, 18 May.
But at least one former BSP official is of the view that a pause in monetary policy tightening at this point is fraught with risks.
According to former deputy BSP governor Diwa C. Guinigundo, a decision by the seven-man Monetary Board to momentarily keep the pressure off inflation is unwarranted given that the headline numbers remain elevated and the exchange rate exhibiting only relative stability.
He noted the BSP indicated a willingness to ease up on its tightening cycle as inflation trends lower and as the peso, which even closed lower by 28 centavos on Monday to P56.07 per dollar, stabilizes.
“While we see initial signs of those conditions, we should be more careful before we suggest to the monetary authority such policy option. A pause could signify going easy against inflation. With inflation still stubbornly high, inflation expectations may likely be upset. This may turn out to be a tougher nut to crack.”
Finance Secretary Benjamin Diokno
Headline inflation of only 6.6 percent in April pushed lower from March when this averaged 7.6 percent. Core inflation, which strips away volatile food and energy prices, proved marginally lower to 7.9 percent from a record-breaking 8 percent in March.
According to Guinigundo, the easing of inflation to 6.6 percent in April from 8.7 percent in January should not amaze policymakers because the latest inflation print weighs heavily on its path going forward.
“But the challenge remains that the April 2023 inflation print is still 35 percent higher than the year-ago of 4.9 percent. Neither should we be comfortable with year-to-date inflation of 7.9 percent, he said.
The BSP has raised rates by a total of 425 basis points since May last year to fight inflation, the full impact of which Diokno said had yet to be absorbed by the economy.
Such is a recognition that the so-called policy horizon stretches over 18 months, sometimes longer, which means it takes that long for any adjustment in the policy settings to have an impact on inflation.
