Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said they will give extra scrutiny in assessing any emerging long-term inflationary pressures due to the higher oil and some food prices when they deliberate policy settings this month.
“The Monetary Board will consider carefully recent price developments that could influence the outlook for inflation along with evidence of second round effects during the monetary policy meeting on March 25,” said Diokno on Friday, (March 5). “The BSP stands ready to deploy its full arsenal of instruments as needed in fulfillment of its mandate to maintain price and financial stability conducive to sustainable economic growth.”
The BSP is on point when it forecast a February inflation of 4.7 percent from a projected range of 4.3 percent to 5.1 percent. The current inflation is higher than January’s 4.2 percent. For the full-year, the BSP’s forecast average is 3.4 percent inflation and a flat three percent for 2022.
Diokno said the latest inflation rate is “consistent with the BSP’s assessment of a transitory uptick in inflation in the first half of 2021, reflecting the impact of weather related disturbances, the African Swine Fever on food prices, higher global oil prices, as well as positive based effects.”
“The sources of near term inflation are supply side shocks in nature that should not require a monetary response unless they lead to second round effects,” he said again. He also reiterated that supply-side shocks are normally addressed by non-BSP or non-monetary interventions because of the temporary nature of supply chain problems. The government is handling these direct measures.
ING Bank economist Nicholas Mapa said in a commentary that BSP has “quelled concerns about a possible policy rate hike in the near term” and that Diokno “does appear confident that inflation will eventually tapper off in the second half of the year once direct supply side remedies to food supply shortages take root.”
“We expect BSP to remain sidelined for 2021 while inflation will likely remain elevated in the near term before gradually decelerating by the third quarter,” said Mapa, adding that the peso “will likely move sideways as Diokno suggest that a rate hike is not on the table for now.” The local currency has been stable for a long time at the P48 level.
In a press briefing last Thursday, Diokno said inflation will continue to be manageable in the next three quarters and their assessment also show that inflation will go back below the midpoint of the two-four target range by the fourth quarter 2021 and first quarter 2022 due to negative base effects.