Philippine central bank says stagflation not immediate risk to economy

The Philippines' central bank is optimistic that recovery will be sustained. PHOTO: AFP

MANILA (REUTERS, BLOOMBERG) – The Philippine central bank does not see stagflation as an immediate risk to the local economy and is optimistic that recovery will be sustained.

A steady upturn in credit activity, ample domestic liquidity and improving labour market conditions will help boost economic activity, Bangko Sentral ng Pilipinas (BSP) governor Benjamin Diokno said on Thursday (June 16).

“The BSP will remain vigilant over emerging price and output conditions, and will undertake necessary action to ensure that monetary policy settings remain appropriately calibrated,” he added.

The Philippines has signalled another rate increase for its June 23 policy meeting, as risks to the inflation outlook tilt towards the upside for both 2022 and 2023.

The central bank last month started unwinding its easy money policy, lifting the overnight reverse repurchase facility rate by 25 basis points to 2.25 per cent, to combat inflationary pressures.

But a survey released on Thursday by the Octa Research group reflected a less rosy outlook.

It showed most Filipinos reeling from soaring fuel and food prices, as well as stagnant pay, even as President-elect Ferdinand Marcos Jr prepares to take the helm next month with promises of a post-pandemic recovery.

Petrol prices have risen by as much as half so far this year. Diesel – used by nearly all public utility vehicles – has gone up by at least 60 per cent.

United Broiler Raisers’ Association president Elias Jose Inciong said the Philippines would likely produce fewer chickens in the coming months, with numbers reduced by pricier, lower-quality feed and poor weather - a slowdown that may drive food costs even higher.

Raising poultry will be “very challenging” , he said, as producers in the Philippines compete with the rest of the world for chicken feed, with the war in Ukraine disrupting supplies. 

Across South-east Asia, food costs are rising, hitting domestic supplies and exports. Malaysia recently banned chicken exports due to rising local prices, and that hit poultry supplies in neighbouring Singapore. 

Central banks in the region are under pressure to tighten policy rates to tame inflation, though the move risks stunting growth and increasing unemployment.

In Bangkok, Thai Prime Minister Prayut Chan-o-cha called an urgent meeting with his economic teams on Thursday.

The meeting sought to tackle rising energy prices and inflation, said deputy government spokesman Rachada Dhnadirek.

Thailand’s headline inflation hit a nearly 14-year high of 7.1 per cent in May. On Tuesday, the central bank said it was ready to manage any excessive volatility in the baht currency, which is now at a five-year low against the dollar.

Bank of Thailand Governor Sethaput Suthiwartnarueput on Monday (June 13) said delaying rate hikes for too long would not be good for the country as inflation continues to climb. 

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