Philippines: DOF’s Diokno says inflation has peaked, softer US Fed hikes ‘good’

MANILA, Philippines — The Department of Finance welcomed the US Federal Reserve’s “softer” interest rate hike while forecasting that inflation in the Philippines has reached its long-awaited peak.

This was what Finance Secretary Benjamin Diokno told the private sector in a Friday briefing organized by the Makati Business Club.

“I think it has peaked. We look forward to an inflation of 4.5% this year. And we’ll be back to where we’re originally were 2-4%, midpoint 3%, by 2024,” he said.

These were the same figures that economic managers released in their last meeting in December last year.

As it is, the Bangko Sentral ng Pilipinas left some room in its inflation forecast, projecting consumer price growth would land between 7.5-8.3% in January.

Inflation accelerated to a 14-year high of 8.1% year-on-year in December 2022.

The rising inflation trend in the past months was partly propelled by an explosion in consumer demand, brought about by the domestic economy’s reopening in the second quarter. This, while supply problems believed to be a byproduct of the pandemic persist.

The BSP projected inflation would slow in the first half of 2023.

Forecasting the peak of inflation in the country proved to be a sore spot for economists, as consumer price growth kept accelerating in the middle of 2022.

That said, Diokno, who sat as BSP governor in the previous Duterte administration, told reporters that the US Federal Reserve’s 50-basis point interest rate hike was a positive development. This was lower than what experts anticipated, which sent global equities on edge ahead of the Fed’s decision.

“Well it’s good news as far as we’re concerned. Instead of 50 bps from 25 bps,” he said.

The Monetary Board is set to convene a meeting in the middle of February to decide how it will tweak its benchmark rate. The BSP, at certain points in 2022, moved in lockstep with the US central bank.

The BSP’s key policy rate, used by banks and financial institutions as a benchmark for borrowing costs, currently stands at 5.5%.

The central bank injected 350 bps into its key policy rate in 2022 to combat rising inflation in the country.

The BSP indicated in December that it has yet to pause its monetary policy actions.