BSP shoots down possible 5% inflation breach this year

MANILA, Philippines — Monetary authorities expects inflation to hover below five percent this year and may remain within the two to four percent target despite rising pressures from the implementation of the new tax law.

BSP Deputy Governor Diwa Guinigundo said on the sidelines of the release of the First Quarter 2018 Inflation Report consumer prices may accelerate to 3.8 percent this year before easing to three percent next year based on the assessment of the Monetary Board during its meeting last March 22.

“So right now, we don’t have the numbers that will change our initial forecast as announced earlier by the Monetary Board. In our monthly path, we don’t see a five percent inflation or even close to it,” Guinigundo said.

Inflation last breached five percent in October 2011 when it averaged 5.2 percent. The consumer price index last breached the BSP target of three to five percent in 2008 when it averaged 9.3 percent due to elevated global oil and food prices.

The consumer price index (CPI) averaged 3.8 percent in the first three months after rising to 4.3 percent in March from the revised 3.8 percent in February based on 2012 prices.

“Inflation expectations appear to have been elevated, but if you look at the numbers they are broadly within the targets of the BSP which is two to four percent,” Guinigundo said.

As such, Guinigundo said the country’s monetary policy stance remains appropriate as inflation is seen to settle within the target.

“If the inflation outlook as shown by our forecast by the next meeting of the Monetary Board shows an inflation rate that is within our target of two to four percent, I think the likelihood of keeping the policy rate steady will be higher. That is if the outlook remains favorable as it is today,” he said.

The BSP has maintained an accommodative policy stance over the past three years to support the growing economy through low interest rates. It last raised benchmark interest rates in September 2014.

Guinigundo said monetary policy remains data driven and anything could change between now and the next rate setting meeting of the Monetary Board on May 10.

The central bank said it has not seen evidence of secondary effects from the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law and insisted the first round impact is only transitory.

BSP Governor Nestor Espenilla Jr. said the sum of central bank actions remain appropriate for the situation.