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IMF: BSP policy tightening to lower inflation seen felt by Q2

The full impact of the Bangko Sentral ng Pilipinas’ (BSP) aggressive monetary policy tightening cycle to stabilize inflation may be felt towards the second quarter of 2023, an official of the International Monetary Fund (IMF) said Tuesday.

“The full impact of monetary policy tightening is probably to be felt more strongly towards the second quarter of this year and onwards,” Ragnar Gudmundsson, IMF resident representative for the Philippines said during the Manila Times Economic Forum in Makati City.

Gudmundsson said that inflation this year was still projected to climb with “some uncertainty” as to when exactly it will peak as upside risks to inflation still linger such as China’s reopening, the Russia-Ukraine war, and weather disturbances.

“If inflationary pressures remain further, or if significant downside risks to growth materialize, monetary policy tightening could be recalibrated,” Gudmundsson said.

Nonetheless, the IMF official said that, “the BSP has taken prompt action to tackle inflation and continue near-term tightening of monetary policy is appropriate to keep inflation expectations well-anchored.”

Amid the uptrend in inflation, the BSP, since May last year, implemented a series of hikes in key policy rates which as of this month have already reached 6% for the overnight reverse repurchase rate, 5.5% for the overnight deposit facility rate, and 6.5% for the overnight lending facility rate. 

EXPLAINER: Higher policy rates: How are you affected? 

Monetary policy or interest rates are among the tools used by central banks to stabilize inflation by controlling the money supply by raising borrowing costs.

Higher borrowing costs could make consumers and businesses spend less, therefore reducing economic activity or lowering demand and eventually lowering prices.

The Philippines saw inflation - the rate of increase in the prices of goods and services - of 8.7% in January, an acceleration that surprised economic managers.

This is a fresh 14-year high or the fastest inflation print since the 9.1% recorded in November 2008.

The BSP, meanwhile, is projecting inflation to remain elevated next month with a forecast range of 8.5% to 9.3%. —NB, GMA Integrated News