The BSP has set an inflation target of two to four percent between 2018 and 2019. Based on its latest assessment, it expects inflation to average 4.9 percent this year, 3.7 percent next year, and 3.2 percent in 2020.
Andy G. Zapata Jr.
BSP digging deeper into inflation toolbox
Lawrence Agcaoili (The Philippine Star) - September 6, 2018 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) needs to dig deeper into its ‘toolbox’ as inflation raced above six percent for the first time in more than nine years to hit 6.4 percent in August, prompting economists to call for another aggressive monetary action this month.

The BSP has set an inflation target of two to four percent between 2018 and 2019. Based on its latest assessment, it expects inflation to average 4.9 percent this year, 3.7 percent next year, and 3.2 percent in 2020.

“An unfortunate confluence of cost-push factors continues to drive consumer price inflation in August beyond the acceptable target range,” BSP Governor Nestor Espenilla Jr. said.

The BSP is pursuing carefully coordinated efforts with other government agencies in implementing non-monetary measures to further mitigate the impact of supply-side factors on inflation.

Economic managers have been pushing for the amendments to Republic Act 8178 otherwise known as the Agricultural Tariffication Act of 1996 that could reduce inflation by 0.2 percentage points this year and 0.6 percentage points if passed and implemented within the fourth quarter.

The BSP chief also cited the weak peso brought by emerging market uncertainties as well as the elevated oil prices that continue to impact transport and power prices.

“These are adding to the cost-push pressures. However, it is equally apparent that strong domestic demand is making it too convenient for producers and traders to pass on higher costs and possibly more to consumers,” Espenilla said.

Monetary authorities, Espenilla said, would be looking more closely at the latest data to reassess the medium-term inflation path.

According to Espenilla, the central bank would also need to consider external developments and actions of the US Federal Reserve that exert undue pressure on the peso.

“Under the circumstances, we will weigh the need for further monetary policy action. Appropriate recommendations will be presented to the Monetary Board on Sept. 27 at its next policy meeting. It is most critical at this point to restore inflation back to the target range soonest and securely anchor inflationary expectations,” Espenilla said.

The higher than expected inflation in August has prompted economists to call for another 50 basis point rate hike in key policy rate of the BSP.

“Bringing inflation back below target will require more policy response. BSP has already increased the policy rate by 100 basis points since May, but real interest rates are still negative. We now expect the BSP to hike the policy rate by another 50 basis points to 4.50 percent at the upcoming September 27 meeting. Further moves beyond that cannot be ruled out,” ANZ economist for Asia Shashank Mendiratta said.

Euben Paracuelles, economist at Nomura Securities Ltd, said the drivers of inflation have broadened, warranting a monetary response from the BSP.

“We continue to expect a further 50 basis points of rate hikes this year. Our baseline is for 25 basis point hikes at the September and November meetings. However, this higher-than-expected pick-up in headline inflation could further stoke inflation expectations, raising the risk of BSP hiking again by a relatively aggressive 50 basis points this month, with possibly more to come,” Paracuelles said.

BANGKO SENTRAL NG PILIPINAS
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