Inflation not likely to reach 6% — BSP

MANILA, Philippines — Inflation may not hit six percent when it peaks either in August or September, according to the Bangko Sentral ng Pilipinas.

“In our forecast, we are not seeing six percent. It might be close to the last one,” BSP Governor Nestor Espenilla Jr. said in a forum.

Inflation leapt to a fresh five-year high of 5.7 percent in July from 5.6 percent in June, bringing the average inflation to 4.5 percent in the first seven months and exceeding the BSP’s two to four percent target.

Based on its latest assessment, the central bank now sees inflation averaging 4.9 percent this year and 3.7 percent next year due to higher oil prices, weak peso, and the impact of the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

This prompted the BSP to jack up interest rates by 100 basis points so far this year to rein in inflationary expectations. It lifted interest rates by 25 basis points for the first time in more than three years on May 10 followed by another 25 basis points last June 20, and by 50 basis points – the biggest in 10 years – last Aug. 9 to curb rising inflationary pressures.

“The role of these moves by the BSP is not so much to cripple the economy, but rather we are conscious that it is important to get people to calm down about inflation,” Espenilla said.

According to Espenilla, stable inflation is one of the key fundaments that define the external perception of how well the economy is doing.

“So for many people, even if the economy is growing, if inflation is out of control that is a big negative,” he added.

Espenilla said the BSP adopted the inflation targeting framework for monetary policy in 2002, requiring monetary policy decisions to be forward looking by considering the widest set of available and relevant information about the economy.

“One of the important things is the discipline that inflation targeting entails, it means that we are going to be disciplined by data, we will not be stampeded by rumor, we will not be stampeded by innuendo, nor could we be panicked. We have to be calmly looking at the data as it happens and interpret these based on our best analysis on how it serves the country’s interest,” he said.

The BSP chief said inflation forecasts have shifted higher over the policy horizon starting the second quarter warranting the tightening of the country’s policy stance as the inflation environment was driven by supply-side factors in the first quarter.

“So these are the factors that weigh heavily on our decision making. Nevertheless today’s environment is very different, there are a lot of things outside of us as well and it will not be prudent for us to say that this is the end of what we will do. Our job is to constantly monitor the environment, act when necessary, and because of that we have left the door open for further actions in case we have to as more data come in,” he said.