INTEREST rates may stay steady in the coming months as monetary authorities take caution amid threats to the stability of consumer prices, chief of these being the possibility of a more intense El Niño and the attendant damage to farmlands.
The Bangko Sentral ng Pilipinas (BSP) said current settings may be enough to ensure economic stability. Officials anticipate higher inflation amid the recent acceleration in economic growth.
“Given the rebound in second quarter gross domestic product (GDP) growth from the first quarter, and the lags of monetary policy, there may be no need as yet to adjust policy,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said.
August inflation may average between 0.2 percent and 1 percent, a new forecast by the BSP showed. In July, inflation dipped to a record low of 0.8 percent.
For the rest of 2015, the BSP expects to miss its inflation target, with the full-year average seen at 1.7 percent or below the 2 to 4 percent goal.
The stable supply of food, lower power rates, and cheap fuel, which has contributed to lower transport fares and input costs, were tagged as the main reasons for the below-target inflation.
The price of oil, which affects about a tenth of the products in the basket of goods tracked by the government when measuring inflation, fell below $40 per barrel in New York this week, the cheapest since 2009. Prices at the domestic market have also remained stable, partly as a result of the government’s decision to accelerate imports.
However, officials have said the El Niño may upset inflation expectations, citing projections by the weather bureau that dry weather conditions may persist for longer-than-expected.
“Upside inflation risks from El Niño continues to preoccupy BSP assessment and BSP inflation outlook over the policy horizon. Deflation risk though is lurking as oil prices remain soft and near seven-year low,” ING economist Joey Cuyegkeng said in a note.
Base effects from last year also kept inflation muted. Last year, inflation peaked at 4.9 percent in the months of July and August.
The BSP’s mandate is to protect consumers’ purchasing power by keeping prices stable. This is done by influencing the cost of money using benchmark interest rates, and through the management of the country’s money supply.
Policy levers in these areas affect the amount of money banks are willing to lend to their clients.
“We are on the lookout for developments in oil prices, manifestations of El Niño, and financial market volatility as part of our surveillance to see if there is a need to adjust the stance of policy,” Tetangco said.