By Melissa Luz T. Lopez, February 11 2019; Business World

Image Credit to Reuters

INFLATION will not zoom past target this year despite threats of a dry spell, a senior central bank official said, citing ample buffer stocks of rice to keep price hikes at bay.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said that out-quota importation approved by the National Food Authority (NFA) Council in November will ensure that there will be no supply problems for the staple this year.

“There about 174 NGOs (non-government organizations) and farmers’ groups who have already applied for importation of around 1.2 million metric tons (MT). In other words, magkaroon ka man ng (even with) El Niño, there’s a good fallback position in terms of out-quota importation,” Mr. Guinigundo, who sits as alternate member of the inter-agency NFA Council, told reporters last week.

As of Jan. 10, the Philippine Atmospheric, Geophysical and Astronomical Services Administration was projecting a 65% chance of an El Niño to “form and continue” between March and May. The weather bureau is currently on an “El Niño watch.”

Data on the NFA Web site show applications from farmer cooperatives and private firms for a total of 1.186 million MT of rice under the out-quota scheme as of Jan. 18. The out-quota scheme allows rice imports beyond the minimum access volume imposed on rice, ahead of the expected signing into law of an impending shift to regular tariffs for the staple from the existing import quota. Removing restrictions on the private sector from bringing in rice is expected to slash retail prices of the stable by up to P7 per kilogram and headline inflation by as much as 0.85%.

Mr. Guinigundo added that roughly 400,000 MT of rice imports are expected to arrive in the country in time for the lean season that starts in July.

“If there is going to be an El Niño phenomenon that could happen any time during the year, this could be addressed by such mitigant as out-quota importation,” the BSP official said.

Last year’s inflation rate of 5.2%, which shot past the BSP’s 2-4% target band, was largely due to food supply constraints. Food prices went up by an average of 6.6% in 2018, faster than the headline pace.

To address this concern, Malacañang issued four administrative orders directing the NFA, the Sugar Regulatory Administration and the Department of Agriculture to lift non-tariff barriers and streamline import procedures for rice, sugar, meat and fish.

From a peak of 9.7% in September, food inflation — which fueled the headline figure to a nine-year-high 6.7% in September and October — has since slowed for four consecutive months to 4.4% in January.

The central bank expects the overall pace of price increases to ease further this year to average 3.1%, while monthly readings are seen to return to below four percent as early as March. January inflation clocked in at 4.4%, better than market expectations.

The slower overall pace of price increases allowed the BSP to keep policy rates steady in its December and February meetings, with some market analysts expecting cuts in the key rate or bank reserves later this year.