BSP worried over impact of drought on inflation

Dry weather caused by El Niño and the effects this may have on the country’s food and power supply are currently on top of the central bank’s list of concerns in crafting monetary policy settings.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said consumer prices were still moving within projections. Likewise, economic growth numbers are widely expected to improve in the coming months as the government ramps up spending.

As a result, the BSP sees no need to implement a cut in current benchmark interest rates, as some analysts are projecting. This comes amid rate cuts by other central banks in the region.

“Easing conditions are not present in the Philippines,” Tetangco said in a speech before members of the Finance Executives of the Philippines (Finex) on Wednesday.

“Inflation is well anchored, and domestic demand conditions remain robust,” Tetangco said, adding that ample liquidity circulating in the economy and a pickup in government spending would drive growth higher for the rest of the year.

Despite the optimism, Tetangco said the BSP does “feel some heat from mother nature,” referring to the ongoing El Niño phenomenon, which the local weather bureau said might last until next year.

Dry weather threatens to lead to weaker harvests across the country, which may result in tightness in the local food supply. The country’s already-precarious power sector is also at risk if weak rainfall fails to sustain major hydroelectric plants.

“As temperatures rise, supply chains may be disrupted,” Tetangco said.

The BSP’s main responsibility is to protect consumers’ purchasing power by keeping prices stable.

For 2015, the BSP expects inflation to average within its target range of 2 to 4 percent. If the target is met, the country will have had stable inflation for seven consecutive years.

Last May, inflation stood at 1.6 percent, the slowest average rise in prices for any month in the country’s history.