BSP lowers inflation expectation for June

MANILA, Philippines — Inflation likely eased to 4.3 percent in June after a three-month stay at 4.5 percent amid the decline in food prices as supply side shocks have been addressed, according to the Bangko Sentral ng Pilipinas.

BSP Governor Benjamin Diokno expects inflation to settle at 4.3 percent in June.

“Higher prices of domestic petroleum products along with the upward adjustment in Meralco electricity rates and a slightly weaker peso are the main sources of upward price pressures for the month. These could be partially offset by the decline in prices of key food items, such as rice, meat and fruits due to improved supply conditions,” Diokno said.

Inflation averaged 4.4 percent in the first five months after remaining steady at 4.5 percent in March, April and May.

Rising global oil prices as well as the impact of supply side shocks such as weather-related disturbances and African swine fever outbreak on food prices, particularly meat, have kept inflation above the BSP’s two to four percent target.

“Moving forward, the BSP will continue to monitor emerging price developments to ensure that its primary mandate of price stability conducive to balanced and sustainable economic growth is achieved,” Diokno said.

Last June 24, the BSP raised its inflation forecast to four percent this year but retained the forecast at three percent for 2022. It also set the inflation forecast for 2023 at three percent.

BSP Deputy Governor Francisco Dakila Jr. said the forecast was raised for this year due to rising global crude oil prices as well as a more favorable global growth outlook.

Dakila said the upward pressures were offset by the lower-than-expected inflation in May and the continued strength of the peso against the dollar.

Although inflation is running above the upper end of the inflation target band, Dakila said inflation would ease back to within the target by the end of the third quarter or fourth quarter.

“It is important that we keep the policy stance accommodative to allow the BSP to provide continued stimulus to credit and to private sector spending activities,” Dakila said.

Despite the massive rate cuts last year, bank lending contracted further by five percent in April from 4.5 percent in March as banks remained risk-averse and with the lukewarm demand from borrowers due to uncertainties brought about by the COVID-19 pandemic.

The BSP has kept interest rates at record lows for the past five rate-setting meetings. It last tweaked the policy rate with a 25 basis points cut on Nov. 19, 2020.

“We assure the general public that the space is there for monetary accommodation to be as long as necessary to support economic activity until we see stronger and sustainable signs of economic recovery,” Dakila said.

Economic managers lowered the country’s 2021 gross domestic product growth forecast to a range of six to seven percent and to seven to nine percent next year due to the resurgence of COVID-19 infections that led to the reimposition of harder lockdowns.