go through Luisa Maria Jacinta C. Josen, Senior Reporter
Bangkok remote NG Pilipinas (BSP) said it is considering moving to the point target of inflation, from the current 2-4% target band, its topfIsir said.
BSP Governor Eli M. Remolona (Jr.
He added: “Yes, yes. In the United States, it’s only 2%. In many other central banks, that’s just a number.”
In December, the Development Budget Coordination Committee negotiated with the BSP to set the inflation target at 2-4% from this year to 2028.
The central bank earlier said the medium inflation target helps “strengthen forward-looking approaches to monetary policy development to help anchor inflation’s expectations of targets.”
Mr Remolona said the inflation target they are focusing on may be a little lower than the 3% midpoint of the current target range.
He added: “Maybe 2% is good enough. We don’t know yet. We are dealing with these numbers.”
Remorona said the goal should not be too low, because it has an impact on economic output.
“The reason this is not zero is because in a growing economy you have to allow relative price changes. When you allow relative price changes, they tend to stick downwards.”
He added: “Allowing them to change means a certain amount of inflation. If the target is too low, it will limit the economy.”
A study by the International Monetary Fund (IMF) shows that in the past, central banks have relied on operational goals in their policy decisions.
After inflation reached double-digit levels in the case of shortage of rice supplies, BSP adopted an improved targeted approach in 1995. This approach focuses more on price stability than on the total currency ceiling.
In 2002, the central bank officially turned to inflation targets.
From 2012 to 2014, the target range of inflation is 4%±1.0 percentage points. In 2015, the inflation target of BSP was set at 3% ± 1.0 percentage points and would not be applied until 2022, although at this time the central government began to use the alternative 2-4% frequency band.
BSP is currently working with the IMF to study the shift toward inflation targets.
“It won’t be updated anytime soon. This is something we ask the IMF to see. They will give us something very soon and they take some time. But I’m very comfortable Our band is between 2% and 4%. ”
He added that central banks can transition to target targets at least one year later.
RRR Cutting
Meanwhile, the BSP chief said a reduction in reserve requirement ratio (RRR) for the remaining time is unlikely.
“Maybe (RRR cuts) next year. Because we are trying to make the earnings curve more reliable, that means better liquidity than we have and the requirement for reserves is a factor,” Mr Remolona said.
“So far, we have been trying to manage liquidity by issuing our own BSP bills. We have been publishing a large number of BSP bills to absorb liquidity in the system.”
As of March, the RRR of general and commercial banks with quasi-bank functions and non-bank financial institutions decreased by 200 basis points (BPS), from the current 7% to 5%.
Digital banks also saw their RRR down by 150 basis points to 2.5%, while the thrift lender’s ratio was down by 100 bps to 0%.
Rural and Cooperative Banks have been at zero since October, the last request for BSP to cut reserves.
“The reserve requirement (cutting) expands liquidity in the system. So we are working to manage it,” Remorona said.
“We may start issuing BSP bills. One alternative is to sell the Treasury bills we hold. This has the same impact on liquidity.”
Earlier data from the central bank showed that about 50% of market operations were done through BSP bills.
“Devaluation”
Meanwhile, Mr Remorona said that as the world reserve currency will be a long and slow process, stay away from the US dollar.
This is talking about “paying for what’s going on” or shifting from the dollar from the policy uncertainty of President Donald J. Trump’s administration.
“As you know, it’s been a safe currency for a long time. Every time there’s some tension somewhere in the world, the dollar gets intensified. Money goes into the dollar.”
He added: “Theoretically, the security advantage of the dollar may decrease over time. But it’s a slow process. This won’t happen immediately.”
The U.S. dollar index measures the Green Guard against a basket of currencies and hits a three-week trap, Reuters reported.
The dollar fell 1.9% over the week, the biggest drop in a week since early April.
After Mr. Trump released his latest trade threat, he recommended importing the EU’s 50% tariff from June 1 and considering imposing a 25% tariff on any Apple iPhone outside the United States.
Mr Remolona pointed out that the highest invoice currency in the UK was once the US dollar, and their transactions were also completed through the US dollar.
“Then they got Brexit and their invoice currency was transferred to the euro. So the dominance of the dollar is not permanent. It can erode,” he said.
Mr. Remolona also pointed out that the “international currency” was not able to be produced.
“Trying to make international currency. This has not been resolved yet. So it is still not very liquid. The conversation comes and goes,” he said.
“Before the yuan, that was the yen of yen. I’m not sure if there were different strategies. It still talks. It could be a long time.”
