Economists polled by the Bangko Sentral ng Pilipinas (BSP) has raised its inflation forecast for 2023 to 5.9 percent in a latest survey, higher than its August estimate of 5.5 percent amid persistent supply-side pressures.
Based on the highlights of the Sept. 21 Monetary Board policy meeting, the BSP said the private sector analysts’ forecast helped guide its decision to keep rates unchanged during that meeting, and to hold the benchmark rate at 6.25 percent for the fourth policy meeting in a row.
“Analysts expect inflation to accelerate anew due to recent supply-side shocks domestically and overseas,” according to the Monetary Board minutes, citing the results of the BSP Survey of External Forecasters for September 2023.
“They also anticipate further upside risks to the inflation outlook, due mainly to supply disruptions, particularly from the adverse impact of weather disturbances and trade restrictions,” it added.
As of end-September, inflation rate was at 6.6 percent, still way above the government target of two percent to four percent. Inflation for the month of September increased to 6.1 percent versus 5.3 percent last August.
Meanwhile, the BSP said inflation expectations have increased “but remain well within the target range for 2024 and 2025” of two percent to four percent.
The 5.9 percent economists’ forecast for 2023 is higher than BSP’s own 5.8 percent estimate.
The BSP also noted that the inflation expectations for 2024 and 2025 also increased to 3.7 percent from the previous survey of 3.5 percent, and 3.5 percent from 3.4 percent, respectively.
The BSP has a 2024 inflation forecast of 3.5 percent and 3.4 percent for 2025.
Based on the minutes of the Sept. 21 monetary policy meeting, the BSP said they adjusted the 2023 and 2024 projections to “reflect the spillovers from weather disturbances, rising global crude oil prices, and the recent depreciation of the peso.”
It continued to note that the balance of risks to the inflation outlook remains skewed toward the upside.
The major upside risks to the inflation outlook are the potential impact of further adjustments in transport fares and electricity rates.
The upward adjustments in the inflation forecast for 2023 and 2024 were driven mainly by the higher-than-expected outturn for August 2023 and higher inflation nowcast for September 2023, said the BSP. “Higher global oil prices and the depreciation of the peso likewise contributed to the upward revision,” it added.
The BSP, when it last surveyed 26 economists from banks and investment firms in the August version, said the market still sees inflation as decelerating in the coming months largely because of negative base effects.
Risks to the inflation outlook remain tilted to the upside due mainly to supply disruptions, particularly the potential adverse impact of El Niño, said the BSP.
The upside risks to inflation, as listed in the survey, are: high prices of basic goods including food, oil and services (restaurant and accommodation services) due to supply factors attributed mainly to weather disturbances such as typhoons and the threat of El Niño; the adverse impact of trade restrictions on selected food items and oil production cuts by OPEC member states; and second round effects, emanating particularly from higher transport fares and wages.
The downside risks, meanwhile, are the lagged effect of the BSP’s successive monetary policy tightening, which is expected to temper inflation, said the BSP.
As for BSP’s monetary policy stance, most economists expect the BSP will continue to take a pause from its tightening cycle for the rest of 2023.
But some analysts said the Monetary Board may decide to hike the policy rate by 25 basis points (bps) in the third quarter, while some expect a possible rate cut of 25 bps by the fourth quarter of 2023.
For next year, all 22 surveyed analysts expect the BSP will reduce the key policy rate by a range of 50 bps to 225 bps, according to the survey.
To contain rising inflation and ease the exchange rate volatility, the BSP has raised the benchmark rate by a cumulative 425 bps from May 2022 until March 2023.
The BSP is still confident that by November or December this year, elevated inflation will return to the target range barring any unexpected supply shocks.
Since inflation is still high, BSP Governor Eli M. Remolona Jr. has already signaled that there will be at least two policy rate hikes before the year ends.
The next Monetary Board policy meeting is on Nov. 16 and Dec. 14.
Remolona also said that an off-cycle rate hike is possible depending on the latest available data.