Philippines Central Bank Sees Limited Spillover From Inflation

The Philippine central bank said it sees limited spillover from faster consumer-price gains that have been driven largely by food and oil costs, hinting that monetary policy will remain loose for months.

Inflation, which hit its fastest pace since December 2018 last month, will remain within the 2%-4% target range this year and next, the central bank said in an e-mailed reply to questions. “All forward-looking information on the inflation environment continues to suggest an eventual deceleration,” it said Wednesday.

Bangko Sentral ng Pilipinas said that like other central banks it “has tended to look past the initial impact of supply-driven forces,” as non-monetary measures “are more appropriate.” Inflation expectations -- while higher -- “remain anchored,” it said.

Philippines Central Bank Sees Limited Spillover From Inflation

Faster inflation is entrenching the nation’s real interest rate in negative territory. The central bank kept its key rate steady at 2% last month to support an economy that has been among the hardest hit in the region by the pandemic, and the slowest to begin recovering.

Loose monetary settings continue to provide substantial stimulus as the economy slowly recovers from the worst annual contraction since at least the 1940s, the central bank said.

“Over the near- to medium-term, monetary policy will continue to ensure that the expansion of money and credit, along with fiscal stimulus and low interest rates, will not lead to excessive inflation and trigger financial stability risks,” it said. In the coming months, policy makers will continue to assess whether a policy adjustment is warranted, keeping in mind the need for economic support, it added.

The central bank next meets on rates March 25.

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