Philippines can withstand deflation shocks

MANILA, Philippines - The Philippines can withstand external shocks coming from the threat of deflation in other economies, the Bangko Sentral ng Pilipinas said. “In our case, I think the impact of such deflation occurring in advanced economies is not significant,” BSP Governor Amando M. Tetangco Jr. said, as other central banks in the region have begun cutting rates.

“It’s because we’re not as open as these economies. Our trade to GDP (gross domestic product) ratio is about 50 percent and it’s lower than the ratios in our neighboring countries,” he added.

 “We (also) have a strong domestic demand… and we have built buffers in case (anything) happens. There is policy space in both the monetary and fiscal sides,” Tetangco said.

Advanced economies such as Japan and those in the euro area have been slipping back to deflation following the sustained drop in international oil prices since the middle of last year.

Emerging markets, meanwhile, saw their inflation rates drop and a number took steps in order to soften any ill effects of the developments in their domestic economies.

 “(Deflation) is clearly a risk factor particularly with the recent steep decline in the price of oil. The reaction of some of the economies even those in the region has been to ease monetary policy… (like) the Reserve Bank of India, the Monetary Authority of Singapore, and Reserve Bank of Australia… so that they can shield their economy from any adverse effects of deflationary pressures abroad,” Tetangco said.

The BSP’s policymaking Monetary Board earlier this month kept key rates unchanged as inflation expectations fell within the two to four target range for this year and the next. The overnight borrowing and overnight lending rates have been maintained since October last year, after a 50-basis-point hike to anchor inflation.

“At this point, we still deem our monetary policy stance appropriate,” Tetangco said.

Last week, the central bank chief reiterated the Philippines is not seen experiencing deflation given the strong domestic consumption and robust services and industry sectors.

Moreover, upside risks to inflation remain due to the pending petitions for utility rate adjustments and the possible power shortage this year.

Inflation slowed to an 18-month low of 2.4 percent in January from 2.7 percent in December amid lower utility rates and the continued drop in global oil prices.