BSP expects inflation to ease until Q4
Lawrence Agcaoili (The Philippine Star) - March 25, 2019 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects inflation to ease until the third or fourth quarter of the year before stabilizing next year due to high base last year.

BSP Deputy Governor Diwa Guinigundo said the downward trajectory of inflation would continue this year before stabilizing at around three percent in 2020.

“The downward trajectory will continue in 2019, but in 2020 it will be generally stable at around three percent. The negative base effects shall have dissipated maybe up to the third or fourth quarter of the year,” Guinigundo said.

The BSP has lowered its inflation forecast to three instead of 3.1 percent this year due to lower than expected inflation in February as well as easing oil and food prices.

For 2020, the central bank kept its inflation forecast at three percent.

Inflation has eased for four straight months to 3.8 percent in February after peaking at 6.7 percent in September and October due to the decline in oil and food prices as well as the strengthening of the peso against the dollar.

Guinigundo said wildcards to the BSP’s inflation forecasts include rising global oil prices as well as a prolonged El Niño that could affect food prices anew.

“El Niño could be prolonged, while oil prices seem to be acting up again,” Guinigundo said.

Inflation rose to 5.2 percent last year from 2.9 percent in 2017 and exceeded the BSP’s two to four percent target amid elevated oil and food prices as well as weak peso.

Easing inflation has allowed the BSP to take a breather from its tightening episode by keeping rates unchanged in three straight rate-setting meetings from December to March.

Guinigundo said a reversal of the previous year’s tightening cycle through rate cuts or reduction in RRR would need careful study.

The BSP official said it would be imprudent for monetary authorities to rush the RRR reduction as well as lowering of interest rates as inflation has yet to return within the central bank’s two to four percent target.

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