BSP sees slight uptick in May inflation
Inflation averaged 2.6 percent in the first four months of the year after easing for the third straight month to 2.2 percent in April from 2.5 percent in March.
STAR/Boy Santos, file

BSP sees slight uptick in May inflation

Lawrence Agcaoili (The Philippine Star) - May 31, 2020 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) said inflation for this month likely ranged from 1.9 to 2.7 percent as supply shocks brought about by the coronavirus pandemic and Typhoon Ambo pushed prices of oil and various agricultural products higher, offsetting lower electricity rates.

BSP Governor Benjamin Diokno said the point inflation projection of 2.3 percent for May by the central bank’s Department of Economic Research (DER) shows a slight uptick from April’s 2.2 percent.

“Higher domestic oil prices as well as the uptick in the prices of various agricultural products due to supply bottlenecks and the impact of Typhoon Ambo contributed to positive price pressures during the month,” he said.

He added the electricity rates in Meralco-serviced areas declined in May despite the reported increase in the total electricity bill due to higher consumption as Filipinos stayed home amid the adoption of the enhanced community quarantine March 16 to prevent the further spread of the coronavirus disease 2019 or COVID-19.

“Moving forward, the BSP will remain watchful of economic and financial developments, and stand ready to take necessary policy actions to ensure the delivery of its primary mandate of price stability,” the BSP chief said.

Inflation averaged 2.6 percent in the first four months of the year after easing for the third straight month to 2.2 percent in April from 2.5 percent in March.

Based on its latest assessment, the BSP’s Monetary Board expects inflation to ease to two percent this year before picking up to 2.5 percent next year. The central bank sees inflation easing further below its two to four percent in the third quarter of this year and the first quarter of next year.

The overall risks seem to weigh toward the downside and the key factors that would push down inflation for this year and also for next year have to do with a steeper slowdown in global economic activity and also a weaker prospect for domestic economic activity due to the COVID-19 pandemic.

On the other hand, upward risks include higher import prices for rice because of the weather disruption in the region on dry conditions in major rice-producing countries in ASEAN, some impact of African swine fever on meat prices as well as potential production disruption and logistical bottlenecks or temporary shortages in supply due to the health crisis.

Malacañang imposed a lockdown since March 16, resulting in a pause

in economic activities as Filipinos stayed at home.

Aside from cutting interest rates by 125 basis points so far this year to support domestic activity and boost market sentiment, the BSP has lowered the reserve requirement ratio by 200 basis points, reduced temporarily the term deposit facility auction volumes. It also adopted various regulatory relief measures to ensure sufficient domestic liquidity in the financial system and lower borrowing costs for affected firms and households.

The BSP also adopted extraordinary measures such as the P300-billion repurchase agreement with the Bureau of the Treasury and the purchase of government securities from banks in the secondary market to help shore up market confidence and support the national government’s initiatives to fight COVID-19.

As part of its easing cycle amid the benign inflation environment and slower-than expected gross domestic product (GDP) growth, the BSP has slashed interest rates by 200 basis points since May last year totally unwinding a tightening cycle that saw rates jump by 175 basis points due to an inflation breach in 2018.

As part of Diokno’s commitment to bring down the level of deposits banks are required to keep with the central bank, the RRR has been lowered by 800 basis points to 12 percent from a high of 20 percent in 2018.

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