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Philippines: BSP’s easing ambitions alive with May inflation likely subdued

MANILA, Philippines — Inflation is seen to slightly accelerate in May from previous month, but would likely remain subdued, giving the central bank space to boost money supply amid the economy’s battle against the pandemic.

In a statement on Friday, the Bangko Sentral ng Pilipinas (BSP) said inflation is seen to settle “within the 1.9-2.7% range” this month, similar with the central bank’s projections in April. 

Within that range however, BSP Governor Benjamin Diokno in a Viber message said a more specific “point inflation projection” is 2.3% for May, which would be a little faster than the actual 2.2% notched in April. The central bank typically gives ranges, not specific figures, for monthly projections in inflation.

According to BSP’s economists that estimated inflation, consumer prices likely saw an “uptick” from an increase in domestic oil prices over the past two weeks, as global oil prices recovered.

Although fuel costs are still generally subdued due to tepid demand, energy department data showed the increases added an average of P5.75 per liter of gasoline as of May 26 from April 28 monitoring. From last month, diesel prices rose around P4.45 per liter, and kerosene by P5.66 per liter.

On top of costlier fuel, Diokno said farm damage from typhoon Ambo worth P1.37 billion exacerbated “supply bottlenecks” caused by checkpoints installed to facilitate movement restrictions during quarantine, as well as fewer factories running.

Despite the expected higher inflation, the projection, if realized, would still likely fall below or within the low-end of the BSP’s 2-4% target for the year. For the first four months, inflation settled at 2.6%. 

Money supply up in March

Low inflation, in turn, gives BSP more leeway to allow more money to circulate in the financial system by cutting interest rates to encourage more lending, or bank reserves to give lenders more cash to lend or invest.

That’s already been done in March and April. BSP slashed policy rates by a total of 125 basis points to a record-low of 2.75%, while reserve requirements were trimmed by 200 basis points to 12%, releasing around P200 billion fresh cash to the economy. 

The impact of BSP’s initial easing is already being felt. A separate central bank report on Thursday showed money supply— as measured by BSP’s preferred gauge of M3— rose 13.3% to P13.1 trillion in March, faster than the 10.9%.

“Going forward, the BSP will continue to monitor domestic liquidity and credit dynamics in order to provide support amid significant disruptions to economic activity,” the central bank said.

Source: https://www.philstar.com/business/2020/05/29/2017371/bsps-easing-ambitions-alive-may-inflation-likely-subdued