The Bangko Sentral ng Pilipinas (BSP) is closely monitoring Russia’s invasion of Ukraine and constantly updating inflation nowcasts to pinpoint risks to growth and emerging second-round price pressures that will derail inflation expectations, said its highest-ranking official on Friday, March 4.

“(The) recent increases in global crude oil prices due to the Russia-Ukraine conflict have raised global and domestic macroeconomic uncertainty over the near term,” noted BSP Governor Benjamin E. Diokno, citing Department of Economic Research’s latest commentaries on inflation after the release of February’s three percent rate, which was within the BSP’s forecast band of 2.8 percent to 3.6 percent for the month.

“Under these circumstances, the BSP will continue to closely monitor the emerging risks to the outlook for inflation and remain vigilant against possible second-round effects from supply- side pressures or any shifts in inflationary expectations,” said Diokno.

He reiterated the central bank’s continued support of government’s non-monetary interventions to “help mitigate the impact of higher oil prices and avoid the broadening of price pressures.”

The Monetary Board, BSP’s policy-making body, has kept a low benchmark rate at two percent since November 2020. Market observers expect the BSP to start raising the policy rates by the second quarter this year, or third quarter at the latest. The consensus is that BSP will raise the policy rate by at least 25 basis points (bps) this year and a bigger 50 bps rate hike in 2023.

The BSP’s economic research said inflation is expected to accelerate over the near term due to higher oil prices as well as the impact of positive base effects. “Nonetheless, the BSP’s full-year inflation forecasts continue to show that inflation would settle within the 2-4 percent target range for 2022-2023 as government direct measures help address the supply constraints,” it said.

With the Russia-Ukraine war, which has impacted on global oil prices and other commodities, the BSP assured the market that it “continues to have a wide arsenal of policy instruments to respond to possible adverse impact of this external shock.”

“The Monetary Board will review its assessment of the inflation outlook along with the latest global and domestic developments in its monetary policy meeting on March 24,” said the BSP.

The three-percent February inflation rate, the same as January’s rate, is lower than BSP’s point-inflation projection of 3.2 percent.

Last year, the full-year headline inflation using the 2018-based series was at 3.9 percent.

Diokno has said that inflation will again break the two-four percent target if global crude prices – which has risen past $100 per barrel due to the Russia-Ukraine conflict -- will stay above $95 per barrel on a sustained basis.

The BSP’s latest inflation forecast for 2022 and 2023 is 3.7 percent and 3.3 percent, respectively. Private sector economists expect inflation to average at 3.5 percent this year and 3.1 percent in 2023, also within the government’s target range.