Risk of zero inflation seen to be minimal

Cheap fuel and the resulting slow movement in consumer prices may be on top of the minds of monetary authorities.

But, at the moment, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said prices should remain stable for the whole of the government’s so-called “policy horizon” of two years.

Swings in fuel prices in international markets, however, would affect policy settings.

“Consistent with our symmetric approach to inflation … we have room to wait for additional data to see if the lower end of our target range will be breached for a persistent period,” Tetangco said late Friday.

Amid slowing inflation, the possibility of the BSP cutting rates—instead of hiking them as previously projected—has been raised by some analysts to give the economy more room to grow.

In a speech before members of the Economic Journalists’ Association of the Philippines, Tetangco emphasized that the BSP was on guard against fuel price movements.

For the first time in history, the BSP brought down its target for inflation, or the average rise in consumer prices, to 2-4 percent in 2015.

This target will be kept until 2018, the BSP said, reflecting the Philippine economy’s productive capacity that keeps supply levels moving in line with demand.

Last month, inflation slowed to 2.4 percent from 2.7 percent in December. For all of this year, inflation is seen to average at 2.3 percent.

Given the lower own inflation forecasts for 2015 and 2016, many are still wondering why the BSP still stands pat on its policy rates, refusing to follow “the other central banks that had earlier eased their policy settings,” the central bank chief said.

He explained that while inflation in the Philippines has gone down, fuel prices may recover this year, pushing inflation right back up.

Tetangco said that, so far, the risk of inflation falling below zero or to negative levels in the Philippines, which would warrant a more accommodative stance from the central bank, “appears to be minimal.”

“While our latest forecasts show a lower inflation path, we expect inflation to stay within the government’s target range,” he said.