Non-monetary tools

Non-monetary tools

Updated: 24 days, 23 hours, 22 minutes, 16 seconds ago

There’s a glaring divide on how the market players, analysts, observers and economic students view the manner by which the monetary authorities address the seemingly never-ending uptick in inflation.

“I’m in the middle,” explains Wilson T. Young, chairman of Victorias Milling Co, Inc. and chief operating officer of Flor De Caña Shipping, Inc., on a random survey conducted by my favorite financial market analyst Jonas Ravelas on the effectiveness of the Bangko Sentral ng Pilipinas (BSP) actions to stave off inflation.

Mr. Wilson is one of those who believed that the BSP is “somewhat effective” in using the key interest rate policy to check on inflation.

His countenance: One can never be uncertain at this uncertain time. We should trust these people (the monetary authorities) because they are acting for and on behalf of the Filipino people.

Such a narrative stemmed from the outcome of the random survey showing that only five percent of the respondents supported the actions taken by the BSP. While the majority of the respondents, 61 percent, viewed that increasing interest rate is, altogether, “not effective.”

The steady rise in interest rate, I believe, is only meant to slow it down and allows one to pause, concentrate, and focus on his decision-making abilities, either to spend or save.

It’s a mechanism to try to slow down our spending. It affects our choices. To graphically picture it: the high interest rate environment will not stop us from having another cup of rice or satisfy your cravings for onion rings, which is relatively expensive at the moment.

It is a bit depressing to say that inflation cannot be solved by jacking up interest rates since it is a supply-side driven issue.

Despite the SRP (suggested retail price) of P120 per kilo, the price of onions depends on where it is being sold. At the weekend Salcedo Organic Market, the price of red onion is between P290 and P390 per kilo.

All things considered, I find it a bit mileage-driven the actions taken by some local government and department officials going around the wet market to check on SRP compliance. 

It’s not only onions, which is under the food component of the consumer price index (CPI), that feel the pinch, the prices of eggs and chicken are likewise on the uptrend with the increasing incidents of bird flu.

Then, housing and transportation, the two other large components of CPI basket’ are likewise on the rise. Transportation is largely on account of the higher import cost of crude oil after Russia’s invasion of Ukraine, now marking its first anniversary this very day.

Yes, Virginia, I fully agree that our inflation is in part import-driven.

From what I’ve gathered, there’s a certain element of mistrust clouding the vision of some, simply because the environment of high interest rate is limiting the business operations of those that depend, in part, on borrowed funds to bankroll its operations.

But as the engines of the economy continue to grind, maybe it’s time to as well consider non-monetary tools, like adjusting the overbought position of banks, to bring down inflation.

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