MANILA (Reuters) — The Philippine central bank has the scope to maintain monetary policy support for the country’s economy, but is on guard against “second-round effects” that could push inflation higher, its governor said on Wednesday.
In remarks ahead of the central bank’s policy meeting on Thursday, Bangko Sentral ng Pilipinas or BSP governor Benjamin Diokno said the inflation environment remained manageable, and that a recent uptick is transitory.
Headline inflation in February hit a 26-month high outside the central bank’s 2%-4% target mainly due to higher food prices.
Despite inflationary pressures, all 13 economists Reuters surveyed predicted the BSP will keep its benchmark overnight reverse repurchase facility rate at a record low of 2.0% for a third straight meeting on Thursday.
“The BSP remains ready to respond to second-round effects such as increased calls for wage and transport fare hikes and elevated inflation expectations,” Diokno said.
“Thus far, demand-side pressures remain muted.”
While the BSP has room to “preserve” monetary policy support for the economy, Diokno warned that a resurgence of Covid-19 infections could further dampen domestic demand and overall business and consumer confidence.
The government has reimposed stricter rules on movements in the capital Manila and nearby provinces as daily coronavirus cases hit a record high on Monday, threatening hopes for an economic rebound after last year’s record contraction.
With the BSP’s support limited by high inflation, Diokno said “the heavy lifting should come from fiscal and health authorities