Friday, October 19, 2018

Monetary Board raises policy rate anew

THE central bank further tightened monetary policy to tame inflation by further raising its policy interest rates on Wednesday, June 20.

In a statement, the Monetary Board said it decided during its meeting Wednesday to raise the interest rate on the Bangko Sentral ng Pilipinas (BSP) overnight reverse repurchase (RRP) facility by another 25 basis points to 3.50 percent, effective Thursday, June 21.

The interest rates on the overnight lending and deposit facilities were likewise raised accordingly.

Jonathan Ravelas, first vice president and chief market strategist of BDO Unibank Incorporated, said the decision to raise the policy rate shows that "policy makers have turned more serious about taming its soaring inflation."

The board, in its statement, said inflation expectations remained elevated because of sustained price pressures on future wage and price outcomes. Policy makers also said the impact of international oil and commodity price movements on overall inflation is expected to be stronger given prevailing robust aggregate demand conditions.

"The risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action," it said.

Earlier Wednesday, Trade Secretary Ramon Lopez warned that sharp wage increases were dangerous because these would fan inflation.

“Prices could go up. If consumer prices increase, of course, everyone will be affected, not just wage earners,” the Trade Secretary said.

“It is somehow dangerous, but nevertheless, let them (regional wage boards) handle the wage increases,” he added.

Lopez’s statement came after President Rodrigo Duterte ordered regional wage boards to study the possibility of raising the minimum wage to address inflation.

He stressed that regional wage boards could base the salary increase on the movements of prices of basic goods in their respective areas.

“There can be a minimal adjustment but that should not be more than what is necessary,” he said. “There should not be any wage adjustments, if there is no inflation in some regions.”

Lopez also suggested that instead of wage increase, a “more sustaining solution” was to attract more investments that would create more job opportunities.

He stressed that additional investments would help “naturally” raise the salaries of minimum wage earners.

“The more sustaining solution for wage increases would be more jobs to be created and more investments to come in. That’s the solution to increase wages,” Lopez said.

“We have to have investments and job creation activities so that the income or wages will go up naturally," he added.

Policy makers first raised the central bank's interest rate on May 10, after inflation hit 4.5 percent year-on-year in April from 4.3 percent in March (based on the 2012-based Consumer Price Index series). The interest rate of the RRP facility was then raised by 25 basis points to 3.25 percent.

The country's inflation rate went up further to 4.6 percent in May. (MVI and Ruth Abbey Gita/SunStar Philippines)