Economists urge BSP to curb inflation by raising rates

MANILA, Philippines- Economists are urging the central bank to tighten its monetary policy later this week after it announced that inflation could have risen to as high as 9.6 percent in May. "Between rising inflation and slowing growth, monetary officials should focus more fighting inflation," said former Budget Secretary Benjamin Diokno. Diokno, who now teaches economics at the University of the Philippines, said the Bangko Sentral ng Pilipinas should tighten its monetary policy "the sooner the better" because monetary action has a long lag time before it takes effect. Last week, the central bank reported that average inflation for May accelerated to between 8.8 percent and 9.6 percent, as prices of imported oil careened over the $130-level during the period. This announcement fueled rumors that the BSP's Monetary Board would raise interest rates on its June 5 meeting. The rumors, however, were tempted by another government announcement that the economy grew at a slower than expected pace in the first quarter of the year. Raising interest rates is a monetary policy tool to curb inflation, but it will also result to even slower economic growth. The country's gross domestic product grew by 5.2 percent in the first quarter, a much slower pace than the 6.4-percent rate recorded in the previous quarter and 7.0 percent in the same quarter of 2007. "They could stay neutral because of GDP numbers, but there is a slim chance to raise [interest rates] by 25 basis points just to signal to the market that they will not let inflation spiral," former Socioeconomic Planning Secretary Cayetano Paderanga said. Victor Abola, an economist at the University of Asia and the Pacific, said the BSP may already be "preparing" for this 25-bps rate increase. - GMANews.TV