The Bangko Sentral ng Pilipinas (BSP) continues to expect price pressures to widen over the medium-term but is confident it will be within BSP’s assessment of the future inflation path.
The BSP said on Wednesday, Oct. 5, that at 6.9 percent inflation for September which is within its forecast range of 6.6 percent to 7.4 percent, their inflation expectation is on point.
“(The 6.9 percent inflation is) consistent with the BSP’s assessment of inflation remaining above target over the near term as price pressures broaden and signs of further adverse second-round effects emerge,” said the BSP in a commentary right after the release of the September inflation number by the Philippine Statistics Authority.
The BSP reiterated that upside risks will still dominate the inflation outlook in the near term.
“Price pressures could come from the potential impact of higher global non-oil prices, pending petitions for further transport fare hikes, the impact of weather disturbances on prices of food items, as well as the sharp increase in the price of sugar. Meanwhile, the impact of a weaker-than-expected global economic recovery continues to be the main downside risk to the outlook. Nevertheless, inflation risks are seen to be broadly balanced in the medium-term as global commodity prices ease going forward,” said the BSP.
The Monetary Board, BSP’s policy-making arm, has increased the policy rate by a cumulative 225 basis points (bps) since May 19. By Sept. 22 which was its latest policy meeting, the BSP raised the benchmark rate to 4.25 percent. The next policy meeting is on Nov. 15 and the market expects the central bank to again increase the policy rate by 50 bps.
The BSP said on Wednesday that its recent policy actions are “intended to bring inflation and inflation expectations back to the target to ensure the balanced and sustainable growth of the economy in the medium term.”
“The BSP is prepared to take further policy actions to bring inflation toward a target-consistent path over the medium term, consistent with its primary objective to promote price stability,” said the BSP.
“The BSP also continues to urge timely implementation of non-monetary government interventions to mitigate the impact of persistent supply-side pressures on commodity prices,” it added. “The BSP will continue to carefully monitor and assess pertinent economic developments that could affect the price dynamics and growth prospects of the country.”
BSP Governor Felipe M. Medalla has said that they will do all that is needed to bring down the elevated inflation amid a rising interest rate environment.
Even at the four-percent level, the BSP rate is still considered low. In fact at 4.25 percent versus an inflation forecast of 5.6 percent, the real rate is still in negative territory.
The latest BSP inflation forecast of 5.6 percent announced last Sept. 22 was higher from its previous estimate of 5.4 percent. For 2023, the forecast is now 4.1 percent from the previous four percent. However for 2024, inflation is expected to average at three percent, lower from its earlier projection of 3.2 percent.
BSP Deputy Governor Francisco G. Dakila Jr. said previously that the recent rate adjustment will help alleviate some pressures off the peso “which could in turn temper inflationary impulses stemming from elevated global commodity prices.” The peso intraday first touched P59 vis-à-vis the US dollar on Sept. 29.