Storms raise inflation risk – ING


    The central bank may start tightening its main policy rates at its upcoming monetary policy meeting on July 31 to temper inflation rate, which is expected to rise further in the coming months due to the typhoon season, according to ING Bank in Asia.

    In a report released on Wednesday, Tim Condon, chief economist of ING Bank in Asia said that Typhoon Glenda—the first tropical storm of the season—is a reminder that the Philippines is especially vulnerable to these natural disasters, particularly for their effects on agriculture and food prices.

    “The typhoon season can be a determining [factor]for inflation,” he said, but qualified that by adding that the Bangko Sentral ng Pilipinas (BSP) has a good record of explaining that supply shocks to the food component do not represent the kind of inflation pressure that needs to be countered with monetary tightening.

    However, Condon noted that this year, the central bank’s rhetoric has swung from hawkish to dovish and back again as it has tightened money supply by raising the reserve requirement ratio of banks (RRR) and the special deposit account (SDA) rate.

    “ING’s 4.00 percent year-end forecast for the main policy rate, which today is 3.50 percent, is one quarter ahead of the Bloomberg analyst consensus forecast but the message is clear, the BSP is next in line after Bank Negara Malaysia to tighten,” Condon said.

    The central bank’s policy-making Monetary Board over the last three consecutive monetary policy meetings has made adjustments to two of its policy levers to curb growth in money supply as a means to tame inflation and maintain stability in the financial system.

    The policy making body decided at its March 27 meeting to raise the RRR for banks to 19 percent, then further to 20 percent at its May 8 meeting in a bid to siphon off excess liquidity from the financial system.


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