By Melissa Luz T. Lopez, March 25 2019; Business World
Image Credit to Business World
THE PHILIPPINES appears “out of the woods” as far as inflation is concerned, with the overall rise in prices of basic goods seen consistently lower until the last few months of 2019, a senior central bank official said, although rising oil prices and the impact of severe weather may be disruptive.
The Monetary Board decided to keep the key policy interest rate unchanged at 4.75%, remaining at a decade-high.
New Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said current settings remain “appropriate,” even as inflation has eased further.
The BSP also scaled down its inflation forecast for the year to three percent, well within the 2-4% target band after overshooting with 5.2% in 2018. Central bank officials are now confident of staying on target, citing four straight months of easing inflation from the nine-year-high 6.7% hit in September and October.
“The downward trajectory will continue in 2019, but in 2020 it will be generally stable at around three percent,” BSP Deputy Governor Diwa C. Guinigundo told reporters. “It has stabilized, and the negative base effects shall have dissipated by maybe up to the third or fourth quarter of the year.”
Price increases averaged 4.1% for the first two months, with February’s 3.8% marking the first time in a year that inflation settled back on target.
The BSP said supply conditions for rice and other food items have since returned to normal after causing price spikes late last year, on top of rising world crude oil prices as well as the impact of additional levies imposed under Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act.
Prior to Thursday’s Monetary Board decision, Mr. Diokno said he saw room to ease policy settings amid declining inflation.
“As far as the information that we have today is concerned, I think we are out of the woods. But given that we only have two observations — 4.4% and 3.8% — our year-to-date is still above four percent. But looking at the forecast of three percent, it looks like we are out of the woods,” Mr. Guinigundo added.
On the flip side, the BSP official said monetary authorities cannot rest easy just yet, adding that it would be unwise to slash interest rates swiftly.
“El Niño could be prolonged. Two, oil prices seem to be acting up again. These are the wild cards,” Mr. Guinigundo said.
“Kaya mahirap na bumaba na magbaba na tayo ng RR, magbaba na tayo ng policy rate (It will be risky to just reduce the reserve requirement and the policy rate),” he added.
“That would be imprudent, we have to be very careful.”
Latest estimates by the country’s weather bureau showed a high probability of El Niño lasting until at least August, with a severe dry spell expected by April. The Philippine Atmospheric, Geophysical, and Astronomical Services Administration said on Friday that while the current El Niño was weak, “varying impacts are present and becoming severe.”
The BSP increased benchmark interest rates by cumulative 175 basis points last year to rein in inflation expectations. Market watchers now see the BSP’s May 9 policy meeting — this year’s third monetary policy review — as setting the stage for the first of successive rate cuts.