With March inflation falling below eight percent, the Bangko Sentral ng Pilipinas (BSP) said it will adopt appropriate monetary policy response to ensure the inflation path will continue to weaken in the next months.
“The BSP will continue to adjust its monetary policy stance as necessary to prevent the further broadening of price pressures as well as the emergence of additional second order effects,” said the BSP on Wednesday, April 5, following the government’s announcement of a 7.6 percent inflation for the month of March, much lower than 8.6 percent in February and 8.7 percent in January.
To date, the average inflation for the first quarter is at 8.3 percent. The BSP has a full-year 2023 average forecast of six percent.
The BSP reiterated its previous call for the government to implement “timely and effective” non-monetary measures to “mitigate the impact of persistent supply-side pressures on inflation.”
Meanwhile, the March inflation of 7.6 percent is within the BSP’s forecast range of 7.4 percent to 8.2 percent. The BSP said the latest inflation is “consistent with the overall assessment that inflation will remain elevated over the near term before gradually decelerating back to target range” by the last quarter of this year, or as early as October.
“The balance of risks to the inflation outlook for 2023 and 2024 also continue to tilt significantly towards the upside. The effect of supply shortages on domestic food prices remains a concern, while the potential impact of higher transport fares, increasing electricity rates, as well as above-average wage adjustments in 2023 point to the broader-based nature of price pressures. On the downside, the impact of a weaker-than-expected global economic recovery continues to be the primary factor that could dampen inflation,” said the BSP.
BSP Governor Felipe M. Medalla has said that a 425 basis points (bps) increase to the policy rate in the last nine Monetary Board decisions including one off-cycle in July 2022, should ensure that inflation will drop down to below four percent by end-2023.
The next Monetary Board policy meeting is on May 18. With the release of the March inflation, the next important data the BSP will be waiting for is the first quarter GDP turnout which it expects will be a growth of 7.1 percent based on its nowcast as of March 23.
Medalla said the impact of the monetary tools utilized to reduce price pressures will allow a gradual lowering of the inflation rate until it reached the government target range of two percent to four percent by October or November.
Presently, the BSP rate is at 6.25 percent. The last rate increase was a 25 bps adjustment last March 23.
The BSP is confident that its monetary policy actions will “cool down” inflation, especially in the second half of 2023. Inflation remains elevated mainly due to the higher prices of food, utilities, and transport fares as well as a more pronounced second-round effects on rent and restaurants.
On a quarterly basis, the central bank forecasts inflation will average at 7.7 percent in the first six months of this year. By the third quarter, it should be at 5.4 percent and lower in the last quarter of the year at 3.8 percent.