Inflation downtrend prompts call for BSP to ease off economic brake pedal

MANILA, Philippines — The country’s inflation rate will likely continue its downtrend over the next few months and settle within the government’s target range until next year, the central bank said after the government announced that the pace of price increases in April slowed further to 3 percent.

At the same time, however, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno warned that domestic consumer prices could still spike higher because of rising crude oil prices in the international market and the effects of the ongoing El Niño dry spell on local agricultural output.

Balancing this are predictions of a weakening global economic environment which could pose “downside risks” to inflation, he said.

“Against these upside and downside risks, the BSP continues to keep a close watch over price developments in the country,” Diokno said, noting that the relevant data will be weighed carefully by the Monetary Board when it convenes to decide on the direction of local interest rates on Thursday, May 9.

The central bank expects that inflation will settle within the range of 2-4 percent for both 2019 and 2020 – a target that has been support by recent data – after last year’s fastest pace of increases in nine years.

The BSP chief earlier acknowledged that banks had been complaining to him of tight liquidity in the financial markets – an offshoot of the 175-basis point increase in interest rates last year to fight off inflation – but added that some central bank officials remain unconvinced that monetary policy should be eased at this point.

The April inflation data was welcomed by the private financial sector which continues to advocate for lower interest rates to encourage loan growth that, in turn, is needed to drive Philippine economic growth.

“With the inflation objective in hand and growth seen to take a hit in the first half, it would be about time for BSP to ease off the brakes from ‘crisis mode’ and finally nudge on the accelerator to zoom to faster growth,” ING Bank Manila’s senior economist Nicholas Mapa said in statement.

On Tuesday, the government said that the April inflation rate was the lowest recorded pace of price increases in 16 months, after the December 2017 rate of 2.9 percent. This brought down the year-to-date inflation to 3.6 percent.

Notably, food inflation slowed to 3 percent as price adjustments in key food items such as rice, meat, and fish further slackened. Reflecting the trend of overall price increases, inflation in the National Capital Region slowed for the eighth consecutive month to 3.1 percent in April 2019 – a development that was attributed by government economists to the effects of the law that liberalized rice imports.

Read more...