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The faster rise in consumer prices in the last month of the year may put the easing measures of Bangko Sentral ng Pilipinas (BSP) on hold, at least in the early parts of 2021.
After the Philippine Statistics Authority (PSA) announcement on Tuesday that inflation reached a 22-month high of 3.5 percent in December, BSP Governor Benjamin Diokno told reporters that this level acceleration is within your expectations for monetary policy.
“December 2020 inflation of 3.5 percent was within the BSP forecast range of 2.9 to 3.7 percent … The BSP continues to expect inflation to settle within the target range over the horizon of politics, “Diokno said.
The governor also said that the recent upward trend in inflation is largely “transitory,” reflecting the short-term impact of the weather shocks.
Inflation figures for the Philippines have risen steadily towards the latter part of 2020. From 2.3 percent in September, it accelerated to 2.5 percent in October, to 3.3 percent in November, and to 3.5 percent. percent in December.
This rise in the country’s inflation will likely push the BSP to halt its easing measures despite previous pronouncements that they will keep the country’s monetary policy accommodative to stem the economic shocks brought on by the measures used to reduce the spread of the pandemic.
Soon there will be no rate cuts
In an assessment, ING Bank Manila economist Nicholas Mapa said that with the recent inflation reading, the BSP is unlikely to lower interest rates anytime soon.
“With the central bank raising its inflation forecast for 2021 to 3.2 percent, we do not expect BSP to adjust its main policy rate anytime soon; however, Diokno hinted at a possible reduction in reserve requirements (RR) in the short term, ”said Mapa.
“We forecast inflation to remain at 3 percent for Q1 2021 with BSP likely keeping policy rates unchanged with Diokno possibly using his interim 200 bp reduction in RR for Q1 if Q4 GDP of 2020 disappoints, “he added.
Looking ahead, Diokno said that while the overall balance of risks for future inflation continues to tilt downward, there are emerging emerging risks to watch out for.
“The upside risks emanate from the possibility of an early launch of Covid-19 vaccines in the Philippines, which is expected to ease existing lockdown measures and further expand the operational capacity of the economy,” Diokno said.
“At the same time, a stronger-than-expected global economic recovery as the vaccine is increasingly deployed in key economies abroad could put upward price pressures on world oil and food prices,” he added.
ASF factor
The member of the Monetary Board and former undersecretary of agriculture, V. Bruce J. Tolentino, said that the consequences of the African swine fever (ASF) together with the “import controls that favor local producers” contributed to increase prices. of meat in December.
Regarding the increase in vegetable prices, Tolentino explained that this could be attributed to “long-standing infrastructure and transportation bottlenecks that have exacerbated the increase in seasonal demand.”
He added that supply disruptions caused by typhoons in the fourth quarter also contributed to the rise in vegetable prices.
“These are the seasonal factors that could have been moderated by the infrastructure. Note that historically typhoon damage is concentrated in the last quarter of each year, ”he told BusinessMirror.
“Bear in mind that the source of the increase in inflation in December is food, especially meat, fish and vegetables. Not rice, as in years past ”, he added.
However, Tolentino said that the central bank expects general price stability throughout this year “given the benign behavior of oil and rice prices.”
“Inflation will remain within the target range of 3 plus or minus 1 percent,” Tolentino added.
With Jasper Emmanuel Y. Arcalas
