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Space narrowing for Philippines’ accommodative policy

May 18, 2022By Reuters

The space for maintaining the Philippine central bank’s accommodative monetary policy has narrowed and authorities stand ready to make adjustments, its governor said on Wednesday, a day ahead of its policy meeting.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the domestic economy’s faster-than-expected growth in the first quarter, at an annual pace of 8.3%, and ongoing downside risks “strengthen the case for a withdrawal of monetary policy accommodation”.

The BSP is expected to raise the overnight reverse repurchase facility rate PHCBIR=ECI by 25 basis points to 2.25% on Thursday to curb rising inflationary pressures, according to most economists in a May 12-16 Reuters poll.

“Second-round effects are starting to manifest,” Diokno told a media briefing, referring to the inflationary pressures that drove the annual headline figure to 4.9% in April, soaring above the 2%-4% target band this year.

“Inflationary pressures now appear more likely to persist and threaten to disanchor inflation expectations,” he said.

A rate rise on Thursday will be the BSP’s first since 2018.

Diokno said average inflation could settle above 4% this year, but is expected to drop back within the same target range of 2%-4% in 2023.

Economists in the Reuters poll also expected the BSP to pick up the tightening pace, with a majority anticipating the benchmark rate to rise to 2.50% by end-September, while the rest predicted it will reach 2.75% or higher.

More interest rate rises are on the way, with rates reaching 3.00% by end-2022, the Reuters poll median showed, up from 2.50% predicted in the previous survey.

Diokno said any policy adjustment will be done “in a timely manner” but did not give a detailed timeline.

The BSP slashed interest rates by a cumulative 200 basis points in 2020 to help revive an economy that had plunged into recession due to prolonged and stringent COVID-19 lockdowns.

(Reporting by Neil Jerome Morales and Enrico Dela Cruz; Editing by Martin Petty and Kanupriya Kapoor)

This article originally appeared on reuters.com

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