The country's inflation rate this year could move towards the 5 percent mark, but it is not likely to exceed that level, according to Bangko Sentral ng Pilipinas (BSP) official.
“In (BSP’s) baseline path, the point forecast do not indicate inflation exceeding five percent (but) it could go towards five percent,” said BSP’s Zeno R. Abenoja, managing director and head of the Department of Economic Research, in an online press briefing on Tuesday, April 12.
During BSP’s last monetary policy setting exercise on March 24, it raised the inflation forecast for 2022 to 4.3 percent from 3.7 percent (Feb. 17 policy meeting). For 2023, the BSP also forecasts a higher inflation rate of 3.6 percent from its previous projection of 3.3 percent. A key factor for the higher forecasts is BSP’s revised assumptions of Dubai crude prices. From a previous assumption of $83.33 per barrel average last Feb. 17, they now see $102.23 per barrel. They also raised the 2023 crude price assumption to $88.21 per barrel from the previous $75.59.
Abenoja said the situation remains uncertain. “In the next (policy) meeting come May 19, we will be evaluating again the forecast path for inflation.”
BSP Governor Benjamin E. Diokno on Thursday, April 12, reiterated that inflation rate is still seen to settle above the two-four percent target range in the second half of 2022 due to the elevated global oil and non-oil prices as well as positive base effects.
“Subsequently, inflation is projected to decelerate back to within the target in Q1 (first quarter) 2023 before steadily decelerating in the remaining quarters of 2023 as oil and non-oil prices are expected to taper off,” said Diokno.
The BSP chief said the central bank continued to closely monitor the emerging risks to the outlook for inflation such as the rising global crude oil price pressures brought about by the ongoing Russia-Ukraine conflict, which have contributed to the increase in energy-related prices.
“However at present, we have not seen clear signs of second-round effects in terms of actual changes in transport fares or wages. Nonetheless, the decision to keep the policy rate at its current level during the last policy meeting was deemed appropriate given increase uncertainties surrounding the outlook for both inflation and growth. In addition, we are aware that inflation is likely to remain elevated in the coming months due mainly to domestic and global supply side pressures,” said Diokno.
Meantime, Diokno said that while inflation expectations have risen, they continue to be anchored to the two-four percent target band. “Under these circumstances, it’s still best to address these inflationary pressures through direct non-monetary interventions. At the same time, the BSP is prepared to act as necessary should we see stronger indications of second-round effects such as when there are already broad-based price pressures and inflation expectations become disanchored,” he added.
Abenoja echoed Diokno, that the forecast path seems to show that inflation will be above the target for the second half of this year up to about the early months or first quarter of 2023. But, he does not see inflation rate exceeding five percent this year.
For its monetary policy meeting next month, Abenoja said the BSP will assess two things that could be taken into account.
“One is that we can observe that international oil prices have actually gone down since the peak that we have seen a few weeks ago. Brent and Dubai crude oil prices are now hovering at less than $100 per barrel. The second point is that the government continues to exercise or pursue measures to address supply-side effects as well as measures to avoid second-round effects -- the clamor for transport fare hike and wages,” said Abenoja.
The BSP official said that in their current 4.3 percent average inflation forecast for 2022, they have already incorporated the possible relaxation of Covid-19 “Alert Level 1” status for the whole country, not just in key areas.
The BSP’s Monetary Board has kept the two percent benchmark rate during its first two policy meetings last Feb. 17 and March 24 this year. The next two upcoming monetary policy meetings are scheduled on May 19 and June 23, its third and fourth policy meetings, while the fifth of eight policy meetings will be in the third quarter or August 18.
The Monetary Board reduced the interest rates by 200 basis points in 2020 and cut banks’ reserve requirement to 12 percent from 14 percent to shore up market confidence and to make sure there are adequate liquidity and credit while battling the Covid-19 pandemic.