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Philippine central bank seeks gov't help in tempering inflation

Publication Date : 18-08-2014

 

The Philippine government must sort out the issues that have led to a tightening in the country’s supply of goods, if it hopes to keep inflation from climbing further in the coming months, the Philippine central bank said.

While controlling inflation has always been the main task of monetary authorities, interest rate hikes and the like cannot and must not be the state’s only line of defence against rising prices.

“We will continue to coordinate with other agencies of government to address pressures from the supply side,” Bangko Sentral Governor Governor Amando M. Tetangco Jr. said last week.

Speaking at a forum organised by Bloomberg for foreign exchange traders, Tetangco said the central bank could not fight inflation on its own.

The BSP’s main responsibility is to protect the public’s purchasing power by keeping prices stable. It does so by controlling the amount of cash circulating in the economy which, in turn, influences consumer demand. The central bank measures, considered to be forms of “demand management,” merely counteract instead of address inflationary pressures that spring from the supply side.

In keeping inflation in check, the BSP said administration officials should ensure the timely importation of certain food products and tighten price monitoring activities to prevent speculative trading.

Lowering logistics and shipping costs, and pushing projects that improve the agriculture sector’s productivity, should also ease the tightness in the country’s food supply.

Last July, inflation rose to its highest level for the year at 4.9 per cent, faster than June’s 4.4 per cent. It was brought on by the rise in prices of rice and other food products, which weighed heavily on the official consumer price basket used to compute inflation.

This year, inflation is forecast to average at 4.33 per cent, faster than last year’s 3 per cent, and above the midpoint of the central bank’s 3-5 per cent target range.

In an attempt to “anchor” inflation expectations, the BSP last July raised policy rates for the first time since 2011. Prior to the hike, the BSP’s benchmark overnight borrowing and lending rates stood at record lows of 3.5 and 5.5 per cent, respectively.

Last month’s hike was also preceded by adjustments in other tools used to curb excess liquidity growth. In April and May, banks were told to hike reserves set aside from clients’ deposits and, in June, yields for special deposit accounts were increased to encourage banks to park more of their idle cash with the BSP.


 

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