Diokno hopes inflation would return to BSP target as rate hikes hold

MANILA, Philippines — Finance chief Benjamin Diokno expects inflation to decelerate by the final quarter of 2023 and land within the central bank’s target as monetary policy does its job of curbing price growth.

This is what Diokno told reporters at a chat on Friday. 

“We’re expecting the inflation rate to be within the 3-4% range in the fourth quarter. This will be at 4% by the end of the fourth quarter,” he said.

The chief of the Department of Finance pinned his hopes on the Bangko Sentral ng Pilipinas’ aggressive rate hikes, which left the policy rate at 6.25% at its meeting this month, to tame rising inflation.

The BSP injected 425 basis points into the benchmark lending rate to temper inflation that has sapped the public’s purchasing power.

To this end, the central bank extended its pause to let the lagged impact of rate hikes seep within the domestic economy.

Inflation skyrocketed towards the end of 2022 to 14-year highs, as its ascent was fueled by supply chain bottlenecks, the peso’s weakness, and the domestic economy’s reopening that led to an explosion in consumer spending.

Accelerating inflation depletes the public’s purchasing power, which is still struggling as the economy bounced back to business-as-usual at the start of 2022. 

Inflation in May settled at 6.1%, lower compared to the preceding months but still outpaced consumer price growth a year ago. 

Despite this, the economy managed to eke out 7.6% of gross domestic product in 2022, faster compared to 5.7% in the previous year. The economic expansion was facilitated by the resurgence of household spending, as mobility restrictions were lifted by the end of 2022 to make way for recovery.

The BSP hopes that before the end of the year, monetary policy would have steered inflation back to their 2-4% target. That much is evident as Diokno expects base effects would send price growth at the lower range of this target in the first quarter of 2024. 

 “Our expectations peg this would land below 2% in the first quarter of next year due to base effects,” Diokno added. — Ramon Royandoyan