BSP not too anxious to unhinge monetary policy

PHILIPPINES - In Brief 04 Mar 2024 by Diwa Guinigundo

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In a quote that could very well apply to the BSP’s inflation management, BSP Governor Eli Remolona was quoted having declared that “we want to be prepared for the dangers of rosy scenarios” when the central bank’s Financial Stability Report was rolled out to the public three weeks ago, February 13. When the Monetary Board decided to keep its policy rate steady at 6.5% last February 14, it also took the stance to keep its hawkish monetary policy statement to maintain the public’s trust that it would continue to focus on price stability. True to form, the BSP's forward guidance contained a recognition of the sustained dominance of upside risks to inflation. Being risk conscious covers those uncertainties that do not fit into quantitative models but in risk matrix that the BSP normally considers. Today, the BSP regularly announces both baseline and risk-adjusted inflation forecasts. As we write this commentary, various economists and forecasters have risked their reputation by announcing their forecasts of the February inflation which will be announced tomorrow, March 5. BusinessWorldbroadsheet cited a median forecast of 3.0%, with a low of 2.5% and a high of 3.8%. Against the BSP’s target of 2%-4% and February forecast of 2.8%-3.6%, our brave number crunchers were quite outside the BSP’s range, on the low side and on the high side. In fact, for 2024, the risk-adjusted projection is quite close to breaching the 2%-4% inflation target at 3.9%. Given all the developments including the periodic upward adjustments in fuel prices, transport fare, power rates and food prices particularly rice and meat products, our own assessment is skewed closer to, but lower than, 3.6% upper ...