Rice tariffication seen to bring down prices, ease pressure on BSP

Removing the import quota and instead slapping a 35-percent tariff on rice will bring down consumer prices and ease pressures on the Bangko Sentral ng Pilipinas to again hike interest rates, London-based Capital Economics said.

“One of the key drivers of rising inflation has been the jump in rice prices, which has been caused by supply shortages. The government has been trying to reduce rice prices by replacing the current system of rice import quotas with a tariff regime,” Capital Economics said in an Aug. 31 note to clients titled “Philippines likely to scrap rice quotas.”

Citing BSP estimates, Capital Economics noted that once implemented, rice tariffication would cut 0.4 percentage point from headline inflation.

The pending bill amending the decade-old Republic Act No. 8178 or the Agricultural Tariffication Act, which put the rice import quota or a quantitative restriction (QR) in place, had already passed in the Lower House and will be up for deliberations in the Senate.

“There is a good chance the bill will pass sometime in September. If this happens, inflation should start to ease, which would reduce the pressure for further aggressive rate hikes,” Capital Economics said.

Capital Economics expects only one more interest rate hike of 25 basis points (bps) this year.

Amid the elevated rate of increase in the prices of basic goods and services, the BSP’s policy-setting Monetary Board jacked up its key policy rate by 25 bps each in May and June, followed by another 50 bps—the most aggressive hike in a decade—last month.