By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) has revised its 2019 inflation forecast lower to 2.5 percent from its previous estimate of 2.6 percent despite the Saudi Arabia oil attacks and its price reactions, according to its highest ranking official.
BSP Governor Benjamin E. Diokno said yesterday they have adjusted the inflation numbers lower and this has already factored in the bombing of Saudi Arabia’s oil facilities.
“Based on the BSP’s latest projection, inflation is expected to average at 2.5 percent for 2019, lower relative to the previous forecast of 2.6 percent (as of August 8), and lower than the official target of two-four percent,” said Diokno. The BSP’s previous 2019 inflation projection of 2.6 percent was announced on the day the Monetary Board cut policy rate by another 25 basis points (bps). For 2020 and 2021, the BSP estimate is 2.9 percent.
Diokno said they did not change the assumptions for Dubai crude oil prices and exchange rate in deciding the latest annual inflation forecast.
“On growth assumptions (we’re) still hitting six percent (2019),” he told reporters on the sidelines of the eCompareMo Finovation conference in Makati.
The BSP expects the lower end of the six to seven percent GDP growth forecasts set by the inter-agency Development Budget and Coordinating Committee. As of August 8 the BSP has an oil price assumption of $63.88 per barrel (Brent) for 2019 which was lower than the previous $64.56 per barrel (June 20) assumption.
For 2020, the BSP assumption is $60.39 per barrel, lower than its last estimate of $61.35 per barrel.
Oil prices increased after the Saudi oil bombing. With Brent crude oil surging to $71.95 per barrel after the drone attacks on the oil refineries, the market was anticipating prolonged disruption in global oil supply. But crude oil fell back to $68 per barrel on Saudi Arabia assurances of a quick recovery. Oil prices dropped further to $64.55 per barrel a week after the bombing.
Diokno, in the meantime, said they will be making separate announcements on the interest rate cut – which is today – and the additional reduction in banks’ reserve requirement ratio (RRR) that he reiterated is around 100 bps. Earlier he said that one more interest rate cut or 25 bps will happen this year. The Monetary Board cut benchmark rates by 25 bps each last May 9 and August 8.