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The central bank expects the country’s inflation rate to remain just within the government’s forecast range for the year amid the rebound in commodity prices that is likely to persist into the third quarter of this year.
According to the recently released minutes of last month’s Monetary Board meeting, the seven-member Bangko Sentral ng Pilipinas group that determines interest rate policy in the Philippines projects an average inflation rate of 4 percent by 2021, which it is the upper limit of the official forecast range of 2 to 4 percent.
Transitory impact
“The upward revision in the 2021 forecast was largely due to higher-than-expected inflationary results in December 2020 and January 2021 and rising global commodity prices,” according to the minutes of the meeting. “Meanwhile, the forecast for 2022 was slightly lower compared to the previous round mainly due to negative base effects.”
The policy-making body said the latest benchmark forecasts expected inflation to accelerate beyond the upper limit of the target range during the first three quarters of the year due to the transitory impact of supply-side price pressures, as well as positive base effects.
For next year, the inflation rate is expected to average 2.7 percent.
Widely balanced
The minutes showed that the Monetary Board believed that inflation risks appeared to be broadly balanced by 2021, but would tilt in favor of a downtrend next year.
In particular, the group cited supply-side price pressures from oil and meat prices along with the impact of an earlier launch of COVID-19 vaccines on national economic activity that could drive inflation higher. .
Meanwhile, lower tariff rates on meat products and the potential impact on the global and national economic outlook due to delays in mass vaccination and the spread of new variants of the virus could limit price increases in the future.
Last month, the central bank opted to keep its key interest range unchanged at a record low of 2 percent, a level that was reached due to aggressive monetary policy last year in an attempt to contain the economic fallout of the coronavirus pandemic.
The regulator said it will likely keep interest rates unchanged when the Monetary Board meets later this month to address the recent rise in consumer prices.
This fact comes after the government announced on Friday that the inflation rate for February had risen to 4.7 percent, exactly as the BSP economists had predicted.
Benjamin Diokno, the BSP governor, said the most recent result was “consistent” with the central bank’s assessment of a temporary rise in inflation in the first half of 2021, “reflecting the impact of weather-related shocks, African swine fever in food prices, higher global oil prices, as well as positive base effects. “
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