Philippines: BSP sees inflation uptick

MANILA, Philippines — Inflation for June likely settled within the 1.9 to 2.7 percent range from 2.1 percent in May as the uptick in the price of rice as well as the rising pump prices of petroleum products continued to put upward pressure on inflation, according to the Bangko Sentral ng Pilipinas (BSP).

In a viber message to reporters, BSP Governor Benjamin Diokno said the central bank’s Department of Economic Research (DER) believes higher gasoline, diesel, and kerosene prices, as well as more expensive rice due to supply bottlenecks, contributed to positive price pressures in June.

These prices, Diokno said, could be partly offset by slightly lower LPG price and electricity rate in Meralco-serviced areas.

“Looking ahead, the BSP will continue to monitor evolving economic and financial conditions to ensure that the monetary policy stance remains consistent with the BSP’s price stability mandate,” the BSP chief said.

Diokno earlier said the balance of risks to the inflation outlook leans toward the downside from 2020 to 2022 owing largely to the potential impact of a deeper and more disruption coronavirus disease 2019 or COVID-19 pandemic on domestic and global demand conditions.

Inflation averaged 2.5 percent in the first five months of the year after easing for four straight months to a six-month low of 2.1 percent in May, way within the two to four percent target set by the central bank.

Based on its latest assessment, the central bank’s Monetary Board sees inflation rising faster at 2.3, instead of 2.2 percent for this year and to 2.6 instead of 2.5 percent for next year due to rising world oil prices.

The central bank has already slashed interest rates by 175 basis points, including three deeper 50 basis points cuts last March 19, during its first ever off-cycle rate setting meeting last April 16 and yesterday to address the adverse spillovers associated with the coronavirus pandemic.

Diokno believes keeping an accommodative stance would further ease the cost of borrowing and ensure ample credit and liquidity in the financial system as the economy transitions toward recovery in the coming months.

The central bank also lowered the reserve requirement ratio for big banks by 200 basis points to 12 percent to free up much needed liquidity to help cushion the impact of the health crisis on the economy.

The Philippine economy is expected to contract between two and 3.4 percent this year, ending 22 straight years of positive growth or since the 0.5 percent gross domestic product (GDP) contraction in 1998 due to the Asian financial crisis.

In all, the COVID-19 measures adopted by the BSP, including a P300 billion repurchase program with the Bureau of the Treasury and the purchase of government securities in the secondary market, have unleashed P1.6 trillion to help jumpstart the economy that stalled after Malacañang placed the entire Luzon under enhanced community quarantine in the middle of March.