The central bank said the country's inflation rate will go back to target range two-four percent in 2023, not 2024 as earlier projected.

Bangko Sentral ng Pilipinas Governor Felipe Medallia on Friday, July 30, said they will recast downwards its 2023 average inflation forecast to below four percent, or within the target range of two percent to four percent, after reassessing emerging trends and price pressures.

Earlier, June 23, the BSP projected an average inflation of five percent for 2022 and 4.2 percent for 2023. The inflation rate will only go back to within the target range by 2024, based on BSP’s mid-term inflation outlook.

However on Friday, Medalla said inflation could return to within the target range earlier than 2024. The Monetary Board, BSP’s policy-making body, issues the latest inflation forecasts during policy rate meetings. The last monetary policy meeting was June 23. The next one is scheduled this month.

Medalla already signalled that they will raise the borrowing rate by another 25 basis points (bps) or 50 bps, to 3.5 percent to 3.75 percent on Aug. 18.

Meanwhile, Medalla also told reporters late Friday, July 29, that the second quarter gross domestic product (GDP) growth will likely hit eight percent to nine percent, almost similar if not slightly better than the 8.3 percent reported in the first quarter.

The sustained GDP expansion in the second quarter will not likely extend in the second half of 2022, said Medalla. “My own personal forecast is seven percent (GDP growth) for the year,” he said. This is within the government’s GDP target of 6.5 percent to 7.5 percent for 2022. Last year, the economy grew by 5.6 percent.

The BSP chief said 2023 growth remains a challenge. The expected high growth rate for consumption and capital formation which is import-intensive for this year will likely result to a high budget deficit. On the other hand, next year’s oil prices may not be as steep as 2022 on account of some resolution to the Ukraine war and other factors, such as interest rates normalization and the price of the US dollar may not costs as much.

As for inflation, Medalla said they will revise both the 4.2 percent 2023 average inflation forecast and the 2024 average projection of 3.3 percent.

“The mean (inflation) is below four percent,” he said. However he is also not dismissing the possibility that it could be higher or just four percent, still lower than the current 4.2 percent average forecast for this year. “Exactly how much we still don’t know,” he added.

“In all likelihood we will revise the inflation number downwards. Similarly, our forecast for inflation in 2024 will also be revised downwards,” said Medalla, noting the slowdown in the prices of global oil in the hope that Russia and Ukraine will come to an agreement soon that their war will not disturb the oil supply.

Inflation in June hit a four-year high of 6.1 percent, bringing the average year-to-date to 4.4 percent, above the government’s two percent to four percent target.

Last week, Medalla assured the market that it is ready to implement its entire arsenal of monetary policy tool kits to tame the peso depreciation and curb high inflation. At the close Friday, the peso regained lost grounds at P55.13 versus the previous close of P55.82.

Medalla has said that ”further monetary policy adjustment will be carried out in the coming months” to prevent high inflation from becoming more entrenched. He reiterated that the recovering economy can absorb more policy rate tightening to prevent a disanchoring of inflation expectations.

He also said there is “enough room for further tightening” of the monetary policy stance.