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THE
Bangko Sentral ng Pilipinas (BSP) is on full alert
against price surges and vowed Monday to act decisively
as or when inflation expectations unravel and so-called
second-round effects begin to be felt.
In an
e-mail from Madrid, Spain, which is hosting the Annual
Governors’ Meeting of the Asian Development Bank (ADB),
BSP Governor Amando Tetangco Jr. said second-round
effects, which respond to monetary-policy adjustments,
are the real threats to inflation as commodity prices
surge further as a result of wage and transport
increases.
The
threats are such that the year’s inflation goal range of
3 percent to 5 percent for the year had been virtually
given up for lost already, according to Tetangco.
“Meeting
the 2008 inflation target is now at risk, with the major
risk factor being movements in global oil and nonoil
commodity prices.
“For
such supply-side factors, monetary policy may be less
effective than direct supply intervention.
“Nevertheless, as we monitor adjustments in wage and
transport prices, we will be ready to act decisively
once these second-round effects begin to impact
inflation and inflation expectations adversely,” he
said.
The
tools by which the BSP responds to such threats are
varied, including its lending facilities, the banks’
reserve requirements, its open-market operations and
foreign-exchange operations, as well.
Tetangco
would not even hint which of these tools, on stand-alone
or in combination with one or the other, the BSP was
likely to use in the future.
Tweaking
its lending rates could do the job rather quickly, but
it is also considered a blunt instrument and the BSP has
used it very sparingly in the past.
Nevertheless, Tetangco expressed optimism the surge in
commodity prices would not adversely impact on bank
lending, where a significant slowdown dampens the
country’s capacity to sustain last year’s growth
momentum.
“The
level of economic activity is greatly affected by
economic agents’ inflation expectations. When these are
well-anchored, both users and providers of funds would
be better able to determine their requirements and risk
appetites,” Tetangco said.
Well-anchored inflation expectations pertain to an
environment in which future price changes are well
anticipated and both the lender and borrower are better
able to determine their requirements.
Under
such circumstances, other forms of raising money apart
from the banks “would grow with the economy.”
He said
the results of the BSP consumer and business expectation
surveys, conducted every three months, are both
invaluable sources of data helping them plot out
inflation going forward.
“Our
most recent consumer expectations survey (CES) and
business expectations survey (BES) show that the
inflation outlook of both sectors is still well
anchored. Nonetheless, we will not hesitate to make any
necessary refinements to the current stance of monetary
policy once we perceive any changes to this,” Tetangco
said. |
