The Bangko Sentral ng Pilipinas (BSP) on Thursday, Dec. 21, said that it will maintain the inflation target range of two percent to four percent over the next three years (2024-2026). 

The BSP normally announces a three-year target for inflation, but did not mention extending the target beyond 2026.

According to the BSP, “the government’s decision to retain the medium-term inflation target underpins the BSP’s resolute commitment to take all necessary action to bring inflation to a target-consistent path over the medium term.”

It added that it “will remain vigilant and data-dependent in deciding on monetary policy in order to steer inflation to a target-consistent path, fostering price and financial stability in the country.”

The three-year medium-term inflation target is consistent with BSP’s “forward-looking approach to monetary policy formulation to keep inflation expectations anchored to the inflation target.”

BSP Governor Eli M. Remolona Jr. has said that for an economy the size of the Philippines, targeting an inflation path of two percent to four percent is appropriate.

He said the current inflation target range is just right to ensure price stability.

The BSP on Thursday reiterated this, and said that “given the current structure of the Philippine economy, recent economic developments, and the overall macroeconomic outlook over the next few years” the existing target range remains appropriate.

Meanwhile, the BSP is confident that inflation outlook is still supporting of economic growth, despite its current high levels. As of end-November, the inflation rate averaged at 6.2 percent, way above the target range.

The BSP said the enactment of structural reforms will encourage domestic economic activity, raise productivity, and help build a sustainable non-inflationary economic growth.

Despite an above-target average consumer price index (CPI) for the first 11 months of 2023, the central bank expects continued inflation deceleration in 2024 and in 2025, due to the limited demand-based inflation pressures amid improving supply conditions.

“However, the risks to the inflation outlook remain strongly tilted to the upside for both years, which requires close monitoring as well as readiness for further action as needed,” said the BSP.

It added that “the prevailing higher-for-longer stance of monetary policy, together with the implementation of the non-monetary measures by the government, is intended to ensure the sustained return of inflation to the medium-term target and keep inflation expectations anchored.”

With high inflation that has steadily risen since mid-2022 due to the global market consequences of the Ukraine conflict with Russia, the BSP’s Monetary Board, along with other central banks, increased the policy rate to contain and manage inflation.

Since May 2022, the BSP has raised the key rate by a cumulative 450 basis points (bps) to 6.5 percent.

Remolona said on Wednesday that they could consider reducing the target reverse repurchase (RRP) rate when the CPI is comfortably within the mid-range of the target or three percent.

For this year, the data-dependent BSP forecasts a risk-adjusted inflation rate of six percent. For 2024, the risk-adjusted BSP inflation forecast is 4.2 percent and 3.4 percent for 2025. Risk-adjusted inflation forecasts take into consideration events or factors that are expected to happen at some point in time.

The inter-agency Development Budget Coordinating Committee (DBCC), which defers to the inflation-targeting BSP when it comes to inflation, said last Dec. 15 that the two percent to four percent target extends until 2028 for purposes of budgeting.

The DBCC, mirroring the BSP, expects the CPI to settle at six percent for 2023 and will return to the target range “in 2024 until 2028.”

As part of budgeting, the DBCC also expects the peso-US dollar rate will stay within the range of P55.50 to P56 until end-December this year. The peso is at P55.75 as of Dec. 20.

For 2024 until 2028, the government expects the exchange rate will settle between P55 to P58 versus the US dollar.

As an inflation-targeting central bank, the BSP is committed to keep a “low and stable” inflation which refers to the rate of change in the average prices of goods and services typically purchased by consumers.

The Philippine Statistics Authority calculates and announces the monthly CPI and the  rate  of  inflation  based  on  a  nationwide  monthly  survey  of  prices for a given basket of commodities.

The primary mandate of the BSP is to maintain price stability, which in essence “promotes  income  equality  by  protecting  the  purchasing  power  of  the  poor  who  often  do  not  have  assets  (real  or  financial)  that  allow  them to hedge against inflation,” said the BSP.