The Bangko Sentral ng Pilipinas (BSP) is relying on the government's non-monetary measures and its firm commitment to tackle and curb high inflation as well as prevent disinflation, according to a BSP official.

BSP Deputy Governor Francisco G. Dakila Jr. said the combination of both government measures and central bank policy actions are critical in containing price pressures.

More importantly, he said these non-monetary measures “remain crucial for disinflation.” 

Disinflation is a temporary slowing in price inflation. Both disinflation and high inflation cause economic distortions that would lead to poverty due to loss of purchasing power. 

The country's inflation was on a declining trend for six straight months or from February until July this year, but because of bad weather, the consumer price index for the month of August went up to 5.3 percent from 4.7 percent in July.

“Given the role of supply-side factors influencing the inflation outlook, the BSP has been vocal in its support of the government’s timely non-monetary measures which remain critical in addressing this supply-side pressures,” said Dakila in a recent Philippine Economic Briefing (PEB) in Dubai, United Arab Emirates, on Sept. 12.

Dakila said that since last year, the government has implemented some measures focused on augmenting the supply of selected food commodities. These measures have consisted of loosening trade restrictions, financial assistance to vulnerable sectors and likewise on a longer-term basis, strategies to boost farm productivity, he said.

He also mentioned the Sept. 5 implementation of Executive Order 39 that capped the rice prices on regular-milled and well-milled rice varieties.

“EO 39 was recently implemented to impose mandated price ceilings on rice as part of NG (National Government) efforts to address rising prices of the food staple amid reports of hoarding and price manipulation by cartels,” said Dakila.

He however did not yet say how the temporary price ceiling will affect inflation.

What he said was that the Malacanang-approved inter-agency committee on inflation and market outlook should help guide the NG in its non-monetary measures going forward.

“This inter-agency committee serves as an advisory body to (President Ferdinand R. Marcos Jr.) and the Cabinet on what to do to mitigate inflation and to ensure food and energy security while balancing the interests of local food producers, consumers and overall economy,” said Dakila. The creation of the committee was first announced earlier this year.

Meanwhile, Dakila said the BSP “has been quick and pro-active in using its expanded toolkit to address the challenges from the inflation front.”

The adjustment to the benchmark rate, now called the target reverse repurchase (RRP) rate by as much as 425 basis points (bps) is one major BSP action geared towards managing high inflation and to bring it back to within the target range of two percent to four percent.

At the moment, the BSP target RRP rate is at 6.25 percent. It has remained at 6.25 percent for the past three Monetary Board policy meetings. Despite the hold stance since March 2023, the BSP has repeatedly signaled to the market that it remains on a tightening bias because of a still above-target inflation. As of end-August, the average rate remains high at 6.6 percent.

During his presentation in the PEB, Dakila said important non-monetary government measures that they support are categorized as short-term strategies and long-term programs.

Short-term strategies include alleviating the impact of El Nino, directly connecting consumers and producers through an enhanced Kadiwa program, and the timely and sufficient importation of key commodities.

Short-term strategies also entail augmenting and pursuing programs related to energy conservation and efficiency, and food security, targeted cash transfers and subsidies for the vulnerable sectors, and the continuous monitoring of relevant developments and coordination with the private sector.

As for the medium to long-term strategies, Dakila stressed on the strengthening of the local food systems, improving digital and physical infrastructure and an enabling regulatory system conducive to investments and ease in doing business.

He also emphasized on the creation and facilitation of improved technology and safeguarding energy, food and water security.

In the same PEB, Dakila assured investors that Philippine inflation is still target-consistent and inflation expectations are well-anchored.

The BSP currently has an inflation forecast of 5.6 percent for 2023, still above the two percent to four percent target. However for both 2024 and 2025 forecasts, the central bank expects inflation will average within the target band at 3.3 percent and 3.4 percent, respectively.