By Lee C. Chipongian
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said they are “out of the woods” based on decelerating price pressures and their forecasts of a flat 3.0 percent inflation for 2019 and 2020.
“As far as the information that we have today is concerned… (these) would indicate, I think, that we are out of the woods,” Guinigundo said after Thursday’s Monetary Board policy briefing.
There’s just two numbers that would back up this initial view – the January and February actual inflation of 4.4 percent and 3.8 percent.
“Given the only two observations – the 4.4 percent and 3.8 percent – our year-to-date is still above four percent (at 4.1 percent) but looking at the forecast of three percent (for 2019 and 2020), it looks like we are out of the woods, basically,” Guinigundo said.
“The downward trajectory will continue in 2019 but in 2020, it will be generally stable at around three percent. It will stabilize (at this level),” he added.
Guinigundo reiterated that a low and stable inflation could be seen in the third to the last quarter of 2019, when the comparable figures would be the 2018 inflation highs of 6.7 percent for September and October. “(The) negative base effects will have dissipated up to the third or fourth quarter of the year,” he said, and then it will stabilize next year.
The risks that the Monetary Board sees include the El Niño impact on prices, the global oil prices and slowdown of growth in advanced countries. “El Niño could be prolonged and oil prices, based on the latest (crude) futures, seem to be acting up again. These are the wild cards,” said Guinigundo.
The weather report that the Monetary Board reviewed for its March 21 policy meeting, where it decided to hold steady rates for now, was based on data as of the first week of March. The report showed that 17 provinces have been affected by the El Niño drought, and more than 34 provinces were in the dry-spell phase.
Guinigundo said however that the rice-producing regions such as Nueva Ecija and Bulacan were not included in the list of areas under the dry-spell. “It is possible that the impact may be less severe than one would expect (during a) dry-spell… we will continue to monitor so we know what to do between now and the next meeting of the Monetary Board (in May).”
The BSP, he said, as a member of the National Price Coordinating Council, is closely coordinating with other government agencies such as the Department of Agriculture for non-monetary measures to ensure price pressures are contained.
Guinigundo reiterates what he said last week that the El Niño dry spell’s impact to inflation is still undetermined. He has also said that the peso rate vis-à-vis the US dollar may be reacting in part to worries about the El Niño impact to the agriculture sector.
Still, he said the peso in general is broadly stable despite foreign exchange (FX) market volatilities. The peso has depreciated back to the P52:$1 level on March 6 and could depreciate further to P53 after hitting P52.89 on Thursday.
“I think in general, the peso is more or less broadly stable because the economy will remain resilient and we do not see any major stress or pressure against the peso,” Guinigundo said last week. “We should see a broad stability of the peso and that’s good for market sentiment and for business, and that should also contribute for greater stability of consumer prices.”
In the meantime, the BSP official said the dry spell effect will be mitigated by the recently signed rice tarriffication bill and the out-quota rice importation program of the government. However, if the El Niño phenomenon will spread to other countries, this would result to higher global rice prices.
As for the FX market, Guinigundo said the short term volatilities are mostly due to external sources such as worries on Brexit and global oil prices. “These are the factors that can account for the volatility in the FX market. Of course, there are also local factors driving volatility in the FX market in particular the prospect of El Niño and the issue of the reenacted (national) budget. These are just some of the things that may be upsetting the sentiment of the market.”