BSP sees steady inflation up to end of the year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) sees steady inflation in the last two months of the year, giving monetary authorities enough room to keep an accommodative policy stance in support of the expanding economy.

BSP Deputy Governor Diwa Guinigundo said inflation in November and December is expected to hover within the three-year high of 3.5 percent.

“Our forecasts for the last two months are basically stable at around this level. But there are upside risks,” he said.

Inflation rose to a three-year high of 3.5 percent in October – the highest this year – from 3.4 percent in September.

Despite the uptick, the central bank maintained its inflation forecast this year at 3.2 percent, but raised next year’s projection to 3.4 instead of 3.2 percent.

Guinigundo said upside risks to inflation this year include the pending petitions before the Energy Regulatory Commission for additional power rate hikes.

He also cited the possibility of another transport fare hike due to the continued rise in oil prices in the world market.

“We will also expect some possible impact coming from transport fare if oil prices continue to act up. And for 2017, the rest of the last two months will still show additional increases in oil prices, transport fare may adjust,” he said.

The benign inflation environment as well as the robust domestic demand allowed the BSP to maintain an accommodative policy stance over the past three years. The last time the Monetary Board raised interest rates was in September 2014 with a 25 basis point hike.

Last Nov. 9, the Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase facility at three percent. The corresponding interest rates on the overnight lending and deposit facilities were also kept steady. The reserve requirement ratios were likewise left unchanged at 20 percent.

The decision was based on its assessment that the outlook for the inflation environment remains manageable within the BSP’s two to four percent target despite higher utility rates and fuel prices.

“It is clear that there is little reason for us to adjust policy stance at this point,” Guinigundo said.

The BSP said the balance of risks to the inflation outlook continues to lean toward the upside due to the possible increase in the price of crude oil.