inflation

Travel industry confident in rebound despite inflation

By Justine Irish D. Tabile, Reporter

TRAVEL industry officials remain confident in a tourism rebound despite rising prices, with bookings and applications already exceeding pre-pandemic levels.

“From what I can see in our travel agency, we are experiencing an increase in demand for… individual bookings and group bookings; I’m sure that airlines and hotels are also experiencing that,” Travel Sale Expo Chairperson Michelle Taylan said at the Travel Sale Expo 2023 news conference on Monday.

She said that the increase in bookings reflects how the “thirst to travel” is still supporting demand despite the rising prices.

“We are experiencing problems, but the people still want to travel,” she said.

“Even a business class (seat) is not that easy for us to book because it’s always full. And this is very interesting and we really don’t know the reason… we just came from the pandemic,” she added.

Jagmohan Tamber, director of online visa application center BLS International, said visa applications have also surpassed pre-pandemic levels.

“In BLS before the pandemic, we accepted applications for Spain visa appointments of around 100 a day … After the pandemic, we are now accepting 135 to 150 every day, but it is still increasing,” Mr. Tamber said.

He added that this is also the same for its agency in Poland, which recorded a more than double the normal level of visa applications.

“Just seeing the difference … I think travel is very good now,” he said.

Marissa Dimaano, assistant vice-president for passenger sales at Philippine Airlines (PAL), said airlines achieved record results in the first half.

“Thanks to our loyal patrons, PAL was actually able to achieve record results for the first half of 2023. And this is really telling how the travel industry has really bounced back from the pandemic,” Ms. Dimaano said.

She said that in the first half, the flag carrier saw an 89% increase in passenger volumes last year and booked record revenue.

“That enabled us to actually invest in new aircraft, new technology and customer experiences for our travelers,” she said.

“With these very positive numbers, we hope that we will be able to sustain it with this hunger for travel for many of our Filipino travelers, as well as our international foreign travelers coming into the Philippines as well,” she added.

United Airlines Philippine country manager for sales Pam C. Navarro said that the airline has been exceeding expectations.

“I’m also happy to share that on the global level, regional level and at the local level we’re doing much better than expected,” she said.

She added that the airline’s fleet buildup during the pandemic reflected its confidence it is in the recovery of the sector.

“We placed orders for 700 aircraft, a combination of wide and narrow bodies, in anticipation of the return of travel,” she said.

The airline has announced plans to operate a Manila-San Francisco service.

“(We are confident) not just in the Philippine market but also on the traffic coming from the US, because ultimately you would want to look at the market from both sides of the world. And the demand is really there, it’s really booming,” she added.

On the sidelines of the briefing, Ms. Navarro said that the direct flight to San Francisco from Manila is only one of the flights that the airline will be launching but noted that it is the most popular route for the US market.

Kesler U. Go, marketing and Philippine representative of Guam Visitors Bureau, said that Guam has yet to return to pre-pandemic levels.

“But if you look at it in a bigger picture, Guam has seen a 200% recovery from 2022 and that includes tourists coming in from Japan and Korea,” he said.

#Travel #industry #confident #rebound #inflation

Peso drops further following faster Aug. US consumer inflation

THE PESO declined further against the dollar on Thursday as the US consumer price index (CPI) continued to pick up in August.

The local currency closed at P56.765 versus the dollar on Thursday, weakened by 4.50 centavos from Wednesday’s P56.72 finish, data from the Bankers Association of the Philippines’ website showed.

The local unit opened Thursday’s session stronger at P56.665 per dollar. Its intraday best was at P56.65, while its weakest showing was at P56.78 against the greenback.

Dollars traded went up to $1.17 billion on Thursday from the $1.02 billion on Wednesday.

The peso was dragged down by faster-than-expected August US consumer inflation, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The peso weakened after US core inflation came in hotter than market expectations,” a trader likewise said.

US consumer prices increased by the most in 14 months in August as the cost of gasoline surged, but the annual rise in underlying inflation was the smallest in nearly two years, likely giving the US Federal Reserve cover to leave interest rates unchanged next Wednesday, Reuters reported.

The mixed report from the Labor Department on Wednesday was published a week before the Fed’s policy meeting and followed data this month showing an easing in labor market conditions in August. Economists, however, believe officials at the US central bank will continue to signal an additional rate hike this year given the stickiness in services inflation.

The US CPI went up by 0.6% in August after rising by 0.2% in the last two months.

In the 12 months through August, consumer prices picked up by 3.7% after rising by 3.2% in July.

For Friday, the trader said the peso could rebound ahead of a potentially softer US retail sales report.

The trader sees the peso ranging from P56.60 and P56.85 a dollar on Friday, while Mr. Ricafort expects it to move from P56.65 to P56.85. — AMCS with Reuters

#Peso #drops #faster #Aug #consumer #inflation

PSEi sinks to 6,100 level amid inflation concerns

THE MAIN INDEX dropped to the 6,100 level on Wednesday as investors remained cautious ahead of the release of August US consumer price index (CPI) data and amid rising oil prices.

The Philippine Stock Exchange index (PSEi) went down by 81.02 points or 1.3% to end at 6,149.18 on Wednesday, while the broader all shares index dropped by 28.62 points or 0.85% to close at 3,330.81.

“The market fell to its lowest close since October 2022, triggered by heightened investor caution ahead of the US August inflation print as well as worries about rising oil prices,” Juan Paolo E. Colet, managing director at China Bank Capital Corp., said in a Viber message.

“Everyone’s attention will be on the US consumer price index report, and the data will determine whether our market rebounds or continues its descent in the coming days,” Mr. Colet added.

The PSEi declined as investors pocketed gains ahead of the release of US CPI data overnight, Luis A. Limlingan, head of sales at Regina Capital Development Corp., said in a Viber message.

US consumer prices likely increased by the most in 14 months in August amid a surge in the cost of gasoline, but an expected moderate rise in underlying inflation could encourage the US Federal Reserve to keep interest rates on hold next Wednesday, Reuters reported.

The consumer price report from the Labor department on Wednesday will be published a week before the Fed’s rate decision. It would follow on the heels of data this month showing an easing in labor market conditions in August.

The consumer price index likely increased by 0.6% last month, according to a Reuters survey of economists. That would be the largest gain since June 2022 and would follow two straight monthly advances of 0.2%.

Meanwhile, oil prices rose by 2% on Tuesday amid tighter supply outlook and as the Organization of the Petroleum Exporting Countries projected the global oil demand to rise by 2.25 million barrels per day in 2024, Reuters reported.

Brent crude was up by 1.6% or $1.42 to $92.06 a barrel, while US West Texas Intermediate crude increased by 1.8% or $1.55 to $88.84 a barrel. Both benchmarks closed at their highest levels since November 2022.

Back home, almost all sectoral indices dropped on Wednesday, except for mining and oil, which rose by 4.52 points or 0.04% to 10,393.65.

Meanwhile, holding firms declined by 90.71 points or 1.52% to 5,857.30; property fell by 37.06 points or 1.43% to 2,546.63; industrials dropped by 123.28 points or 1.37% to 8,817.59; services decreased by 13.71 points or 0.9% to 1,509.01; and financials lost 13.49 points or 0.74% to end at 1,790.04.

Value turnover went up to P4.73 billion on Wednesday with 740.94 million shares changing hands from the P3.97 billion with 535.63 million issues seen on Tuesday.

Decliners outnumbered advancers, 100 to 70, while 47 names closed unchanged.

Net foreign selling dropped to P436.53 million on Wednesday from P961.49 million on Tuesday. — SJT with Reuters

#PSEi #sinks #level #inflation #concerns

Peso weakens anew vs dollar ahead of US inflation report

THE PESO depreciated against the dollar anew on Wednesday on expectations of a pickup in US consumer inflation last month.

The local currency closed at P56.72 versus the dollar on Wednesday, weakening by seven centavos from Tuesday’s P56.65 finish, data from the Bankers Association of the Philippines’ website showed.

The local unit opened Wednesday’s session at P56.68 per dollar. Its intraday best was at P56.60, while its weakest showing was at P57.73 against the greenback.

Dollars traded went down to $1.02 billion on Wednesday from the $1.11 billion on Tuesday.

The peso was dragged down by expectations of faster US inflation in August, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The peso depreciated anew amid potentially higher US consumer inflation reports due to be released tonight,” a trader likewise said in an e-mail.

US consumer prices likely increased by the most in 14 months in August amid a surge in the cost of gasoline, but an expected moderate rise in underlying inflation could encourage the Federal Reserve to keep interest rates on hold next Wednesday, Reuters reported.

The consumer price index (CPI) likely increased by 0.6% last month, according to a Reuters survey of economists. That would be the largest gain since June 2022 and would follow two straight monthly advances of 0.2%.

Mr. Ricafort added that a stronger dollar and higher global crude oil prices on Wednesday caused the peso to decline.

The dollar index, which tracks the currency against six peers, held firm, though moves were subdued, up 0.1% to 104.70, as traders awaited the US CPI reading for August.

The dollar index has surged 5% since late July and stands at its highest level in around half a year.

Meanwhile, oil prices jumped about 2% to a near 10-month high on Tuesday on a tighter supply outlook and optimism over the resilience of energy demand in major economies.

Brent futures rose by $1.42 or 1.6% to settle at $92.06 a barrel, while US West Texas Intermediate crude rose by $1.55 or 1.8% to settle at $88.84. Both benchmarks closed at their highest levels since November 2022.

For Thursday, the trader said the peso could weaken further following the US CPI report and ahead of the release of US producer price index data.

The trader sees the peso moving between P56.60 and P56.85 a dollar on Thursday, while Mr. Ricafort expects it to range from P56.60 to P56.80. — AMCS with Reuters

#Peso #weakens #anew #dollar #ahead #inflation #report

Peso up on steady US inflation bets

THE PESO strengthened against the dollar on Tuesday after a survey by the New York US Federal Reserve showed Americans see stable inflation for the next five years.

The local currency closed at P56.65 versus the dollar on Tuesday, up by four centavos from Monday’s P56.69 finish, data from the Bankers Association of the Philippines’ website showed.

The local unit opened Tuesday’s session weaker at P56.72 per dollar. Its intraday best was at P56.63, while its worst showing was at P56.79 against the greenback.

Dollars traded went down to $1.11 billion on Tuesday from the $1.12 billion on Monday.

“The peso strengthened after the latest New York Fed survey signaled a stable US inflation outlook, dampening views of further US policy rate hikes,” a trader said in an e-mail.

Americans’ overall views on inflation were little changed in August, despite predictions of rising price increases for rent, homes and food, while downgrading their views of their personal financial situations, the New York Fed reported on Monday, Reuters reported.

The Consumer Sentiment Survey for August showed respondents see inflation a year from now at 3.6%, up from July’s 3.5%, while they project inflation three years from now to hit 2.8% versus 2.9% in July. Five years from now respondents see inflation at 3% from July’s 2.9%.

The Federal Open Market Committee will next meet on Sept. 19-20 to review policy.

The Fed hiked borrowing costs by 25 basis points (bps) last month, bringing its target rate to a range between 5.25% and 5.5%.

It has raised rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The peso strengthened on Tuesday as the dollar traded weaker against the Japanese yen, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The dollar was last 0.89% weaker at 146.50 against the Japanese currency after earlier dropping about 1.3% to 145.89, its lowest since Sept. 1.

The dollar was on track for its biggest one-day percentage drop against the yen since July 12.

The dollar index, which measures the US currency against peers including the yen, was last down 0.32% to 104.52, after falling to 104.41, its lowest since Sept. 5. The dollar has climbed for eight straight weeks.

For Wednesday, the trader said the peso could trade sideways ahead of the release of August US consumer inflation data.

The trader sees the peso moving between P56.60 and P56.85 per dollar on Wednesday, while Mr. Ricafort expects it to range from P56.55 to P56.75. — AMCS with Reuters

#Peso #steady #inflation #bets

ANZ hikes inflation forecast for PHL

ANZ RESEARCH raised its inflation forecast for the Philippines this year and next year, as it expects inflation to remain above the central bank’s 2-4% target band in the fourth quarter.

In a note, ANZ Research economist Debalika Sarkar and Chief Economist Sanjay Mathur said Philippine inflation is now projected to average 6% this year from 5.3% previously. The 2024 projection is 3.5% from 3%.

If realized, 2023 inflation will be higher than the 5.8% average last year and the 5.6% forecast of the Bangko Sentral ng Pilipinas (BSP). It would also mark the second straight year that inflation exceeds the BSP’s 2-4% target band.

“The trajectory underlying our revised forecast implies that inflation will stay above the BSP’s 4% tolerance level even in the fourth quarter of 2023 and may return to the target band in the first quarter of 2024,” ANZ Research said.

Last week, BSP Governor Eli M. Remolona, Jr. said in an interview with BusinessWorld that inflation may return to the 2-4% target range in the first quarter next year, and not in the fourth quarter of 2023 as previously forecasted.

August inflation unexpectedly accelerated for the first time in seven months, amid a spike in food and transport costs. Headline inflation quickened to 5.3% in August from 4.7% in July.

For the first eight months of the year, inflation averaged 6.6%. This is still higher than the central bank’s revised 5.6% inflation forecast for this year.

ANZ Research said more than half of August inflation came from the sharp rise in the heavily weighted index for food and nonalcoholic beverages.

“The acceleration in food prices was broad-based, reflecting a supply shock from seasonal typhoon activity and the impact of India’s restriction on rice exports,” it said.

ANZ noted the acceleration of transport inflation is an “early sign of risks stemming from rising global oil prices.” Transport inflation rose to 0.2% in August from -4.7% in July.

The research firm noted that high oil and food prices may also affect inflation expectations, raising the risk of second-round effects.

Meanwhile, ANZ Research said recently implemented rice price ceilings offer temporary relief for consumers, as it can bring down prices of regular rice and well-milled rice by 34% and 24%, respectively.

“However, price ceilings can stoke inflationary pressure or create shortages if not supported by complementary measures such as adequate monetary support to retailers, farmgate price regulations and/or a reduction of the rice import tariffs from its current 35%,” it said.

On Sept. 5, the government began implementing a price ceiling for rice nationwide amid a spike in prices and reports of hoarding by cartels.

“In short, the Philippines’ inflation battle is not yet over. Even if rice price caps alleviate some pressure and second-round effects are not accounted for, full-year 2023 inflation is likely to exceed our (previous) baseline forecast of 5.3%,” ANZ Research said.

Meanwhile, Moody’s Analytics said the biggest worry for Philippine inflation is the El Niño weather phenomenon, which can further impact agricultural produce and keep food prices elevated for longer.

Higher train fares may also put upward pressure on inflation, it said.

“Despite that, we expect inflation to ease over the coming months and touch the higher bound of BSP’s 2% to 4% target by the end of the year,” Moody’s said.

“Unless inflation across food and energy proves to be stickier than expected, the central bank is likely to hold rates steady for the rest of the year and cut rates from the first quarter of 2024. We look for inflation to average 5.7% in 2023,” it added.

For ANZ Research, the reversal in August inflation will weigh on monetary policy.

“For now, we maintain the view that the BSP will hold the policy rate at 6.25% and that a cut is unlikely even in 2024. Our earlier view was the BSP would be able to start cutting the policy rate from the second quarter of 2024,” it said. — Keisha B. Ta-asan

#ANZ #hikes #inflation #forecast #PHL

Rice crisis in the Philippines sounds a global inflation alarm

SURGING RICE PRICES in the Philippines could be a warning sign for other major importers of the food staple as the fallout from India’s export restrictions continues to reverberate across Asia and West Africa.

Rice inflation in the Southeast Asian nation increased at the fastest pace in almost five years in August, reviving memories of a 2018 shock that led to the end of a two-decade-old limit on imports. The Philippine central bank warned this week that it’s ready to resume monetary tightening if needed, while diplomacy and deals reign elsewhere as other countries rush to secure supply.

“We’re seeing a great deal of uncertainty,” said Shirley Mustafa, an economist at the United Nations’ Food and Agriculture Organization. “Price pressure is being exacerbated by the restrictions.”

India’s restrictions have upended the market and prompted worried nations to secure supply as they try and contain the rising cost of rice, which is a vital part of the diets of billions of people across Asia and Africa. Manila has placed a cap on prices, a measure that’s led to the downfall of a finance official.

Finance Undersecretary Cielo Magno said she will resign after a Facebook post that appeared to question the recently implemented price cap. The limit was imposed earlier this month after an “alarming” increase in retail costs.

Supply security is at the top of the agenda for many consumers. Philippine President Ferdinand R. Marcos, Jr. and Vietnamese Prime Minister Pham Minh Chinh met on the sidelines of the ASEAN Summit in Jakarta and are planning a five-year deal. Senegal is making diplomatic overtures to India, taking similar steps to other nations including Guinea and Singapore to ensure supply.

Indonesia has agreed to sign a supply agreement with Cambodia for the first time in over a decade. The memorandum of understanding is for as much as 250,000 tons a year, more than double the volume of a similar deal in 2012. Jakarta has already pledged to provide 10 kilograms of the grain each month to millions of poor families during the fourth quarter of this year.

Other nations are taking steps to stem rising costs. Malaysia has implemented a purchase limit and started checks on wholesalers and commercial millers after allegations that local grain was being sold as imported rice at a higher price. Myanmar has also imposed a mandatory system to record volumes of stored rice to control domestic prices and deter speculation.

Some heat came out of the market this week with Asia’s rice benchmark dipping slightly, but prices are still near the highest level since 2008. — Bloomberg

#Rice #crisis #Philippines #sounds #global #inflation #alarm

Inflation unlikely to overshoot target in Q1

INFLATION is on track to return to the central bank’s 2-4% target range in the fourth quarter, but unlikely to overshoot the target in the first quarter of 2024, Finance Secretary Benjamin E. Diokno said.

“By the first quarter of next year, instead of overshooting — because we expect overshooting before — we will be right smack in the middle of the 2-4% range,” he told reporters on Friday.

Inflation unexpectedly quickened for the first time in seven months in August, as food and transport costs jumped. Headline inflation accelerated to 5.3% in August from 4.7% in July, ending six months of decline.

For the first eight months of the year, inflation averaged 6.6%. This is still higher than the central bank’s revised 5.6% inflation forecast for this year.

Despite the faster August inflation, Mr. Diokno noted that the Bangko Sentral ng Pilipinas (BSP) still sees inflation falling within the 2-4% target range by the fourth quarter.

“While there was a spike in the inflation rate for (August), the continued decline in the year-to-date inflation rate suggests our (Development Budget Coordination Committee) full-year 2023 inflation rate assumption of 5-6% remains doable,” he said.

BSP Governor Eli M. Remolona, Jr. last week said the central bank will likely revise its full-year inflation forecast for 2023 at its Sept. 21 policy meeting.

Mr. Remolona has also said that inflation will likely return to the 2-4% target in the first quarter of 2024.

Meanwhile, former BSP Governor Felipe M. Medalla said inflation is now likely to remain above the target band for up to 22 straight months or until January 2024.

August marked the 17^th consecutive month that inflation went above the BSP’s 2-4% target range.

“My original forecast was that inflation will be higher than target in 20 consecutive months (or November 2023) — the previous longest period wherein that was the case was 15 months. With the global rice price shocks, we could end up with 22 consecutive months of higher-than-target inflation,” he said in a text message.

Global rice prices soared after India banned the export on non-basmati white rice in July. India accounts for over 40% of global trade.

Even as inflation remains above the target range, Mr. Medalla said the BSP’s credibility will not be at risk.

“We have always said that the forecast of when inflation will be back within target was based on the assumption that there will be no new major shock. And clearly what happened to global rice prices was a surprise to anyone without a crystal ball,” he said.

University of Asia and the Pacific (UA&P) Senior Economist Cid L. Terosa in an e-mail said that it will be difficult for inflation to ease to the 2-4% target in the fourth quarter due to supply-side constraints.

Supply constraints contribute significantly to inflation, but “are not susceptible to change in monetary policy,” he noted.

“Moreover, the BSP does not have direct control over the actions of wholesalers and retailers, who are critical conduits of increases in prices,” he said.

Mr. Terosa also noted that the August headline inflation rate of 5.3% was expected due to high food and energy prices.

August inflation was mainly driven by the faster annual increase in the heavily weighted index for food and nonalcoholic beverages, which rose to 8.1% in August from 6.3% in the previous month.

Rice inflation surged to 8.7% in August from 4.2% in July due to tight supply, marking the fastest pace since the 9% print in November 2018.

Transport inflation quickened to 0.2% in August from -4.7% in July, ending three months of decline.

China Banking Corp. Chief Economist Domini S. Velasquez said the price cap on rice imposed by the government may cause inflation to ease in September, and return to within the 2-4% target in November.

The government on Sept. 5 began implementing a price ceiling on rice at P41 per kilogram for regular milled rice and P45 per kilogram for well-milled rice.

“The reaction of traders to the rice price ceiling merits close attention and monitoring,” Mr. Terosa said.

The Foundation for Economic Freedom earlier said the rice price cap may cause harm to retailers, farmers, and even consumers, as it will only “aggravate the current tight rice supply situation into a full-blown rice crisis.”

Meanwhile, Ms. Velasquez noted that upside risks to inflation have emerged in recent months.

“Vegetable prices are at risk due to consecutive typhoons, sometimes hitting northern Luzon. Oil prices will likely stay elevated especially with the recent production cuts of Saudi Arabia and Russia,” she said.

“Lastly, this month we expect the regional wage board decisions that could fan demand-side inflation.

Last week, the Regional Tripartite Wages and Productivity Board in Region IV-A (Calabarzon) issued a wage order which provides a 9-11% increase from the current daily minimum wage rates, ranging from P35 to P50 depending on the geographical area and labor sector. The higher daily minimum wage for the region, which is considered a manufacturing hub, will take effect on Sept. 24.

For his part, Mr. Terosa said supply shortages in agricultural products, higher fuel prices and the start of holiday-related spending may stoke inflation in the coming months.

“Nonetheless, I believe the BSP is still on top of things since it continues to mindfully address what it can control,” he said.

“Unfortunately, there are several external conditions that the BSP cannot influence or control such as weather disturbances, supply chain disruptions, policy actions of foreign governments, and geopolitical events, which have tightened supply of various commodities considerably,” he added.

To tame inflation, the Monetary Board has raised borrowing costs by 425 basis points, bringing the benchmark interest rate to a near 16-year high of 6.25%.

Ms. Velasquez said the BSP may not respond with another rate hike in September. “For now, we expect BSP to stand pat at 6.25% but remain hawkish if inflationary expectations become de-anchored.”

Mr. Medalla also said that the BSP is unlikely to cut policy rates this year.

“It is also worth noting that the current policy rate will be higher than the forecasted monthly headline inflation rates in the last four months of 2023 and average inflation in 2024,” he said. — Keisha B. Ta-asan with inputs from Luisa Maria Jacinta C. Jocson

#Inflation #overshoot #target

BSP sees within-target inflation by Q1

INFLATION is now likely to land within the Bangko Sentral ng Pilipinas’ (BSP) target by the first quarter of 2024, not the fourth quarter of this year, BSP Governor Eli M. Remolona, Jr. said.

“We’re not quite clear about the fourth quarter (of 2023) yet. We’re still looking at the way our tightening measures have been working their way through the economy on the demand side. We’re not sure about the fourth quarter because if there are further supply shocks, then the numbers will be different,” Mr. Remolona said in an interview with BusinessWorld Editor-in-Chief Wilfredo G. Reyes on Sept. 4, a day before the government reported a faster-than-expected 5.3% inflation for August.

BusinessWorld’s one-on-one interview with Mr. Remolona will be streamed on BusinessWorld and The Philippine Star’s Facebook pages, as well as the BusinessWorldTV YouTube page, at 11 a.m. today (Sept. 8).

“My best guess is it will be the first quarter of 2024, before we get into the (2-4%) target range,” Mr. Remolona said.

The BSP will likely upwardly revise its full-year forecast of 5.6% for 2023 at the next policy meeting on Sept. 21, he said.

Inflation unexpectedly accelerated for the first time in seven months in August, as food and transport costs rose. The consumer price index (CPI) quickened to 5.3% in August from 4.7% in July, above the 4.9% median estimate in a BusinessWorld poll conducted last week.

August marked the 17^th consecutive month that inflation surpassed the central bank’s 2-4% target range.

For the first eight months of 2023, inflation averaged 6.6%.

Mr. Remolona said the central bank still has space for further tightening.

“If inflation continues to be an issue, then we could raise policy rate from 6.25% to a higher policy rate. If we think the tightening is already very effective, then we wouldn’t need to increase further,” he said.

The BSP has kept its key policy rate at a near 16-year high of 6.25% for the last three meetings. It has hiked benchmark interest rates by 425 basis points (bps) from May 2022 to March 2023 to curb inflation.

Aside from inflation, Mr. Remolona said the Monetary Board will also be taking into account recent economic output data at its next policy-setting meeting on Sept. 21.

“That (output data) for us is an indicator of how much we’ve done on the demand side to compensate for the pressures from the supply side,” he said.

“We could still hike. We have a sense of how high we can hike before growth becomes an issue, we compute what we call the natural rate and we’re still below the natural rate. We have room to hike because of our calculations.”

Mr. Remolona said the Philippine economy can still grow by 6% this year, the lower end of the 6-7% growth target for 2023, if the government ramps up spending.

Gross domestic product grew by a slower-than-expected 4.3% in the second quarter, partly due to government underspending. This brought the six-month average to 5.3%, still below the government’s 6-7% target this year.

Meanwhile, Mr. Remolona said the US Federal Reserve is still hawkish, but the Jackson Hole speech by Chairman Jerome H. Powell in August had more uncertainty compared with the previous Federal Open Market Committee (FOMC) statement.

“But I think, in my opinion, they’re slightly behind the curve in terms of tightening. I think we’re closer to being on track in terms of tightening,” he added.

The US Federal Reserve hiked borrowing costs by 25 bps at its meeting in July. This brought the Fed funds rate to 5.25-5.5%, its highest level in 22 years.

The next meeting of the FOMC is scheduled for Sept. 19-20.

Mr. Remolona, however, noted that several financial crises occurred after the Fed raised its policy rate “very sharply.”

“In November 1994 for example, for the first time the FOMC raised its policy rate by 75 bps, within a few months we saw the Tequila crisis. And within the two years we saw the Asian (financial) crisis,” he said.

“This time, the FOMC has been even more aggressive than it was in 1994, so this makes me worried about what might happen down the road,” he said.

Earlier this year, markets around the world were rattled by the back-to-back collapse of Silicon Valley Bank (SVB) and New York’s Signature Bank. A crisis of confidence also hit Credit Suisse, which resulted in a state-led rescue by its Swiss rival UBS Group.

“We already saw SVB, we already saw Credit Suisse, I’m concerned that there may be further financial accidents in the future. I think what high levels of interest rates do is they make the floor more slippery for banks and so they make accidents, or slips, more likely to happen,” Mr. Remolona added. — Keisha B. Ta-asan

#BSP #sees #withintarget #inflation

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