No need to change policy stance amid inflation upticks: Diokno

MANILA – Demand-side price pressures remain well-anchored despite the acceleration of headline inflation.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno thus maintains that there is no need to adjust policy rates this time.

In a virtual briefing on Thursday, Diokno said the acceleration of the domestic inflation rate remains driven by supply-side pressures, such as the volatility of prices of oil and agricultural products, weather disturbances, and government policy changes.

He said the central bank’s capacity to address shocks from these factors is limited thus, BSP officials continue to monitor for any second-round effects, such as rate hike proposals for power and transport fare.

This, he said, is because initial effects of supply shocks “tend to be short-lived in nature.”

“Notwithstanding the impact of supply-side factors on the inflation path, we are not inclined to tighten monetary policy at this juncture,” he said, adding that “there has been limited evidence of second-round effects thus far.”

Diokno said supply-side pressures are best addressed by non-monetary measures, such as the price cap on pork, the supply of which was affected by the African swine fever; the institution of the special hog lanes for uninterrupted flow of supply around the country; and an increase in pork importation.

He said the challenge for central bank officials is “in finding the right balance between seeking to reduce inflation and avoiding the further weakening of the real sector.”

Diokno said BSP officials “believe that monetary policy settings remain appropriate to support domestic activity.”

“We will continue to evaluate in the coming months if adjustments in the policy stance will be warranted,” he added.

Core inflation, which excludes volatile items like rice and oil, stood at 3.5 percent in the first two months of 2021, within the government’s 2 percent to 4 percent inflation target until 2023.

Headline inflation rate registered a faster rate of 4.5 percent during the same period. It has been on the rise since the last quarter of 2020.