Monetary tightening is not over – Moody’s Analytics

MONETARY AUTHORITIES are unlikely to end their streak of interest rate hikes despite inflation easing slightly in February, according to Moody’s Analytics.

“Inflation in the Philippines is too high and has probably not peaked yet; chances are good that the cycle of tightening the country’s monetary policy has not yet ended,” Moody’s Corp. said in a statement. subsidiary said in a report last Friday.

The Philippine Statistics Office last Tuesday said headline inflation slowed to 8.6% in February from the previous month’s 14-year high of 8.7%.

“Philippines consumer price growth in February cooled the tendrils,” says Moody’s Analytics, also acknowledging that the result – as part of the Bangko Sentral ng Pilipinas (BSP) forecast of 8.5% to 9.3% m/m – “contrasts with our expectations regarding acceleration.

Food and drink, housing, water, electricity, restaurants and accommodation services have kept inflation high, but even excluding volatile food and energy, the resulting core inflation rose to 7.8 percent from 7.4 percent in January.

The policy-making BSP Monetary Board raised the discount rate by another 50 basis points to 6.0% on February 16 last year in an ongoing attempt to curb inflation. The last time the rate was so high was in August 2008 during the global financial crisis.

Key interest rates have been raised by a total of 400 basis points since last year as commodity prices skyrocketed after Russia’s invasion of Ukraine.

Average domestic inflation in 2022 was 5.8 percent, exceeding the BSP’s target range of 2.0 to 4.0 percent.

At its February meeting, the Monetary Board raised its 2023 forecast to 6.1 percent from 4.3 percent. It says the increase was driven by inflation in January, rising domestic demand and gross domestic product.

Inflation is projected to remain above the target this year before returning to a 3.1 percent target in 2024.

Following the release of inflation data for February, the BSP said that the current forecast will be revised at the next meeting of the Monetary Board on March 23.

The central bank said it remains “ready to adjust its monetary policy settings as necessary to ensure inflation expectations are not lost and keep the inflation target on the political horizon.”

The BSP also continued to call for the timely and effective implementation of non-monetary government measures to mitigate the impact of continued supply pressure on inflation.