IMF to BSP: Continue monetary tightening

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MANILA– The International Monetary Fund is advising the Bangko Sentral ng Pilipinas (BSP) to carry on its monetary tightening policy to ensure inflation remains within target in 2015.

“The trend of tightening monetary policy considering uncertainties on rising inflation pressures should be continued,” Changyong Rhee, director at the IMF’s Asia & Pacific department, said in a briefing yesterday.

The Central Bank increased key policy rates by 50 basis points to guarantee that inflation will still be at two to four percent next year. Earlier, analysts have expressed their concern regarding the 2015 target band saying that it may be breached because of the narrower targets for this year.

For this year, the inflation rate is currently at 4.4 percent. The tight supply conditions and pending petitions for lowered power rates continue to affect the pricing.

According to Rhee, food prices are affected both by the supply side and demand factors.

“For many other advanced economies, inflation can be controlled by monetary policy alone but here, the inflation rate… (is a product of) monetary policy as well as the supply constraints led by infrastructure, and import and export policies,” Rhee said.

He added, “But having this (two to four percent) target (next year), I hope it can give pressure to the other ministries… to expedite the structural reforms which helps reduce the inflation pressure.”

Rhee also noted that while other countries are primarily concerned about deflation, the country is pressured by driving the inflation up given that the economy is expanding. For the IMF, its forecast for the country’s economic growth is at 6.2 percent for 2014, and 6.5 percent for 2015.

“Overall, the Philippines at this moment is one of the stellar performers … in the ASEAN (Association of Southeast Asian Nations) and the global front,” Rhee said.

In the first half of the year, Philippine economy grew by six percent. Still far from the target of 6.5 to 7.5 percent.

Per Rhee, the “well-above five percent growth rate” of the country is a rare case. Some of the reforms that contributed to this include governance reforms, fiscal reforms, and sound macroeconomic fundamentals.