Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said Tuesday, April 11, that based on a month-on-month reading of the country’s consumer price index, it is now consistent with the BSP’s forecast of 2.9 percent for 2024.
In an interview with Bloomberg TV, Medalla who is currently in Washington DC for the International Monetary Fund and World Bank Group spring meetings, said the stable peso vis-à-vis the US dollar is a factor for what he’s hoping will be an ongoing inflation deceleration.
“What contributed to that (consistent low month-on-month inflation) is that the high interest rates reversed the depreciation of the peso from a 13 percent depreciation year-on-year (in 2022) whereas the peso actually appreciated by 2.5 percent since January. This is the other factor that’s working (for a decelerating inflation),” said Medalla.
The BSP chief reiterated that if the April inflation data is consistent with the last two data points in February and March which showed a declining headline consumer price index – “then maybe it’s time to pause because we are not as worried now about the currency depreciating and it has actually strengthened quite a bit.”
On Tuesday, the peso closed weaker at P54.93 from P54.4 last April 5, before the Lenten period. The weighted average rate was at P54.734 from P54.428 previously while spot market volume reached $1.143 billion, based on data from the Bankers Association of the Philippines.
Medalla said raising the policy rate by a cumulative 425 basis points (bps) since May 2022, from nine straight policy meetings including one off-cycle move, the BSP has done enough “to eliminate excess demand”. With a relatively stable exchange rate, he’s more confident inflation will be more manageable in the second half of the year.
Meanwhile, the BSP is looking more at inflation on a month-on-month basis versus year-on-year inflation. “The question now is if the rest of inflation that was brought about by the shocks – or the secondary effects – will also follow soon and we’re beginning to see signs of that as well on the month-on-month inflation,” said Medalla.
Medalla said before Holy Week break that one, he still sees inflation falling below two percent in 2024 “for a few months” and two, that if April inflation is lower than March’s 7.6 percent, then the BSP will opt for a pause.
For the first three months, inflation is still elevated. It is averaging at 8.3 percent which was way above the target of two percent to four percent. Medalla has said inflation will drop below four percent by October this year.
As of its last Monetary Board policy meeting on March 23, the BSP forecasts average inflation of six percent for 2023 and 2.9 percent for 2024.
After seeing February’s turnout of 8.6 percent and March’s much-improved 7.6 percent rate, Medalla said January’s 8.7 percent may have been the peak already. “It’s hard to say. It’s too soon (to predict),” he said.
While headline inflation eased to 7.6 percent year-on-year in March, the core inflation which does not include volatile food and energy items continued to increased to eight percent from 7.8 percent in February.
Medalla said that “Febuary and March month-on-month inflation rates were very low” and “if April month-on-month inflation is also low, that’s three consecutive months of low in month inflation, which could be supportive of a pause.”
The government will release the April inflation data on May 5. The next Monetary Board policy meeting is on May 18.