DOF sees enough room for low interest rate

Published October 12, 2020, 6:00 AM

by Chino S. Leyco

The country’s low inflation environment provides the Bangko Sentral ng Pilipinas (BSP) the adequate legroom to keep its interest rates steady to support economic recovery, the Department of Finance (DOF) said.

Based on the latest DOF economic bulletin, Finance Undersecretary and Chief Economist Gil S. Beltran, said the easing inflation rate will stimulate the local economy shuttered by the coronavirus pandemic.

“Low inflation will provide adequate room for low interest rates to support economic recovery as the country transitions to the new normal,” Beltran said in the report submitted to Finance Secretary Carlos G. Dominguez III.

In September, the rate of increase in consumer prices slowed to 2.3 percent from 2.4 percent in the previous month, well within the government’s target of 2.0 percent to 4.0 percent.

Beltran said the slowdown in the general price level was due mainly to food items, which average prices dropped to 1.5 percent from 1.74 percent last month, overwhelming the uptick in price of non-food products.

Likewise, rice prices declined from year-ago’s level by -0.57 percent, while vegetables declined by 2.66 percent, and corn decreased 0.61 percent. 

Meat prices, however, increased by 2.92 percent, but at a much slow pace than the 4.03 percent in August.

 On the other hand, non-food cluster slightly picked up pace from 2.1 percent in August to 2.45 percent in September due to transportation and utilities.

Prices of transport services jumped to 16 percent, while that of the housing rental utilities group inched up to 1.15 percent last month.

Acting Socioeconomic Planning Undersecretary Karl Kendrick T. Chua, meanwhile, said that while the headline inflation last moth remained low and stable, the some upside risks continued to persist.  

“Due to stable supply, free movement of goods, and recent structural reforms, inflation in September was well below the midpoint of the central bank target at 3 percent,” Chua said.  

He emphasized that landmark reforms, such as the Rice Tariffication Law (RTL) of 2019, enabled the country to withstand supply shocks that could have otherwise threatened overall price stability.    

However, the onset of La Niña, the continued presence of African Swine Fever in the country, imposition of localized lockdowns, and supply chain bottlenecks could pose upside risks to the low inflation environment.  

 “Concerned government agencies and local government units also need to strengthen the implementation of its phytosanitary and biosecurity measures and intensify its meat inspection efforts,” Chua said.

“This is to suppress the spread of potentially contaminated meat products, as new cases of African Swine Fever and Avian Influenza are reported,” he added.

He said that the government could also explore and expand projects that will improve the country’s water management systems, distribute climate-resilient seed varieties, provide post-harvest facilities, and ensure business continuity and delivery of goods across the country.

Likewise, Chua said the new waves of COVID-19 cases around the world and slower than expected economic recovery continue to put downward pressures on global oil prices.

 Despite this, Chua assured that the government is closely monitoring global price movements to remain ready to address any potential shocks.