By Keisha B. Ta-asan and Luisa Maria Jacinta C. Jocson, July 31, 2023; Business World,and%20Russia’s%20invasion%20of%20Ukraine.

The Bangko Sentral ng Pilipinas (BSP) needs to ensure that the downtrend in inflation is “more permanent,” amid persistent upside risks arising from the El Niño weather event and Russia’s invasion of Ukraine.

“Inflation is in the right direction but we have to be able to set in the measures which will make it long term and sustainable. Right now, we’re lucky that fuel prices are going down. But that’s luck. We need to make it more permanent,” Monetary Board member Bruce J. Tolentino told reporters on the sidelines of the annual reception for the banking community on Friday.

At the same event, BSP Governor Eli M. Remolona said it is too early to “declare victory” against inflation, even if it is on its way to the 2-4% target band.

“Core inflation remains high. There are still upside risks to inflation — for example, risks in the form of El Niño and further supply shocks. We will wait and see. We will analyze the data as they arrive, and that analysis will decide monetary policy down the road,” Mr. Remolona said.

The BSP expects inflation to return to the 2-4% target range by the fourth quarter this year, with full-year inflation hitting 5.4% in 2023. Inflation is expected to decelerate further to 2.9% in 2024.

According to Mr. Tolentino, the blockage of wheat and fertilizer exports due to the ongoing conflict in Ukraine will impact prices of rice and corn globally.

“We’re reacting to international developments particularly to fuel, but if Ukraine gives a kick to food and fuel prices, we have a problem,” he said.

Earlier this month, Russia quit the Black Sea Grain Initiative which allowed Ukraine to export grain to help prevent a global food crisis.

“There’re still long-term underlying productivity issues that we have to resolve, and those long-term underlying productivity issues are all about agriculture,” Mr. Tolentino said, adding the government should consider amending the tariff structure to support price stability.

National Economic and Development Authority Secretary Arsenio M. Balisacan said inflation likely further moderated in July, but cited risks from rising oil prices.

“We are seeing oil prices going up a bit. We’ll see how Russia moves in the Ukrainian exports of grain, but I will say that it will not be as bad in terms of the global reaction of the markets as before, because I suppose that you know, the world learned from those further shocks,” he told reporters on Friday.

Mr. Balisacan also noted the impact of Typhoon Egay, which has caused P1.5 billion in agriculture damage so far.

“That’s really a very serious concern because we never expected this kind of flooding. The assessment is still going on,” he said.

“They’re monitoring the situation, especially the impact on agriculture because it’s flooding in the Ilocos Region. Benguet has also been hit hard and that’s where a lot of vegetables come from. We don’t have much of the data now. Hopefully, it’s not that serious,” he added.


Meanwhile, Finance Secretary Benjamin E. Diokno, a member of the Monetary Board, said that the BSP does not have to match the recent rate hike made by the US Federal Reserve.

“I don’t think we have to match, that’s my view. We have to monitor other indicators like inflation and what’s the impact of this recent adjustment on the global economy and the domestic economy,” he said in a press chat on Friday.

The US central bank hiked the federal funds rate target range by 25 basis points (bps) to 5.25-5.5% last week, the highest level in 22 years.

The BSP also raised its key policy rate by 425 bps to 6.25% from May 2022 to March 2023. It will meet again on Aug. 17 to discuss the country’s policy settings.

The interest rate differential between the Fed and the BSP now stands at 75 bps.

“When we meet on Aug. 17, we will look at all this. (We also consider) the impact of the slowdown. We have to think, we might have a recession here. We will look at all the numbers. We are data dependent,” Mr. Diokno said.

Mr. Diokno said that there have been times where the interest rate differential between the Fed and the BSP is narrow.