SURGING OIL and merchandise prices caused by Russia’s invasion of Ukraine are supply issues best handled by policenational government companiesment, according to the governor of the central bank of the Philippines.
“Since inflationary pressures come from supply-side factors, a monetary response in terms of policy rate adjustment is neither appropriate nor reactive,” said Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno, to reporters in a Viber message Saturday night.
“An increase in the policy rate will not change the reality that the prices of energy and other raw materials have increased due to Russian-Ukrainian competition.flICT,” he added.
The central bank kept its key rate unchanged for 11and back-to-back meeting on Thursday, even as it warned that its inflation target could be exceeded this year amid soaring global oil prices due to Russia’s continued invasion of Ukraine.
It raised its inflation outlook for 2022 to 4.3% from 3.7%, which is beyond its target of 2-4%.
Inflation in February stabilized for the second consecutive month at 3%. The local statistics agency will release March inflation data on April 5.
Mr Diokno said their latestflThe estimate of the ration took into account the sharp rise in prices of maize, wheat, nickel and fertilizers due to the war. Dubai crude also surged above $100 a barrel, he pointed out.
The executive branch should do the “heavy lifting” to mitigate the impact of the war onflation, he said.
“It is when there are clear second-round effects on the demand side, for example, higher wages and higher transport fares, that the central bank may choose to act to mitigate inflpressures from the nation,” he added.
“While the Philippines and other countries are all affected by rising energy and other commodity prices, some are more affected than others,” Diokno said. “But the Philippines does not face the labor shortages and high asset prices that most developed countries face.”
The central bank chief said this month that he preferred to wait until the second half of the year before considering a rate hike. PASB will hold its next policy review on May 18.
Mr. Diokno, a former budget secretary, recommended non-monetary measures to mitigate the effects on inflation, such as increasing fuel subsidies for the transport sector and rebates from oil companies.
He said the government could also remove oil tariffsffs until December, which would also keep the buffer stock at 30 days.
The government should also source wheat from India, while promoting flour substitutes.
Russia, the world’s second largest exporter of crude, and Ukraine are the main exporters of wheat. Together they supply more than 25% of the world’s wheat.
The central bank last week left the key rate at a record low of 2%, as predicted by 15 of 17 economists in a Business world survey. Deposit and debit rates were also maintained at 1.5% and 2.5%. Its last rate move was a 25 basis point cut in November 2020.
The Philippines and other Asian economies, including Indonesia and Japan, have refrained from the global cycle of rate hikes led by the US Federal Reserve while awaiting signs of significant price increases.
Last week, Mr Diokno said domestic economic activity had gained traction as coronavirus lockdowns eased. But heightened geopolitical tensions and the resurgence of coronavirus infections in some countries have clouded the outlook for global economic growth.
“Supply chain disruptions could also contribute to inflationary pressures and thus warrant closer monitoring to enable rapid intervention to stop potential second-round e’s.ffects,” he told a brieIfng after Thursday’s rate decision.
Manila, the capital and neighboring cities and provinces have been placed under the most relaxed lockdown since March 1, allowing businesses to boost operations.
Global oil prices have soared in recent weeks amid Russia’s continued invasion of Ukraine.
At home, the sharp rise in oil prices has fueled calls for higher tariffs and minimum wages. The government provided 2.5 billion pesos in fuel subsidies to the transport and agricultural sectors, and was preparing an additional 2.5 billion pesos in distributions. — Luz Wendy T. Noble