BSP mulls rate hike on wage pressures

Published by rudy Date posted on April 2, 2011

MONETARY authorities are ready to undertake another round of tightening in key policy rates if the minimum wage increases will go beyond what have been assumed in their forecast, according to the Bangko Sentral ng Pilipinas (BSP).

BSP Deputy Governor Diwa Guinigundo said the central bank will have to do another “run of its model and compute” the impact of higher adjustments in wages if the Regional Tripartite Wages and Productivity Board-National Capital Region (RTWPB-NCR) approves a pending petition to raise wages by P75.

“It will depend on the outlook that will come from that eventuality. If and when it will be given due course, then we really have to go back to the drawing board and start reviewing the impact of that larger adjustments in wages,” Guinigundo said.

A workers’ union is pushing for a P75 increase in the minimum wage for workers in Metro Manila in light of the rising prices in basic commodities. Monetary authorities had assumed a much lower increase of P25.

Unless there is extenuating circumstances, wage boards
are allowed by law to increase wages only once a year.

Guinigundo said if inflation expectations, as well as public’s expectations, would turn out more unfavorable, then “subsequent review and adjustment of policy rates may be needed.”

Monetary authorities earlier said that the inflation path was going up in the coming months, possibly exceeding the BSP’s target range in the second or third quarter.

“This is the reason why the Monetary Board precisely increased policy rates by 25 basis points, because if we didn’t act last week, true enough the average inflation rate for this year and 2012 could have risen close to 5 percent or even beyond,” Guinigundo said.

The central bank had said last month’s price movement may settle at a range of 4 percent to 5 percent, with bias leaning on the higher tip of the range amid volatile movements in the international prices of oil.

After keeping its rates steady for almost two years, the policy-making Monetary Board on March 24 decided to increase by 25 basis points its key policy rates to 4.25 percent for the overnight borrowing and 6.25 percent for the overnight lending facilities.

The decision was based on signs of stronger and broadening inflation pressures as well as an upward shift in the inflation risks amid a combination of sustained global recovery and supply disruptions caused by the political unrest in Middle East and North Africa.

The same sentiments have dampened consumer confidence in the first quarter of the year, with the overall consumer sentiment declining to -23.1 percent from an all-time high of -8.5 percent in the fourth quarter of 2010.

The next meeting of the Monetary Board is on May 5. –Lailany P. Gomez, Reporter, Manila Times

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