For Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno, the prolonged dry spell due to El Niño could still weigh down the inflation outlook.
On the sidelines of the Asian Development Bank’s (ADB) 52nd Annual Meeting, Diokno told the Inquirer that he considered El Niño to be the “biggest risk” and not so much the volatile global oil prices of late.
“I wanted to see its (El Niño) impact on inflation, specifically April inflation. I think we should look at more targeted areas—in which regions was El Niño felt the most, and if it affected food-producing regions,” Diokno said in an interview on May 4.
On May 7, the government reported headline inflation fell to a 16-month low of 3 percent in April, averaging 3.6 percent during the first four months—already within the government’s 3-4 percent target range.
With easing inflation and disappointing first-quarter gross domestic product (GDP) growth—a four-year low of 5.6 percent mainly due to government underspending on public goods and services no thanks to a reenacted budget at the start of the year—the BSP cut the policy rate by 25 basis points to 4.5 percent.
Asked by the Inquirer Friday if he still thought El Niño remained the biggest concern after they were presented data during Thursday’s Monetary Board meeting, Diokno replied: “Indeed between the El Niño episode and the world oil price increase, El Niño poses a bigger risk.”
“However, it is our assessment that the dry spell could be milder than originally expected. It is also our view that the worst is over with respect to higher food prices and the slowdown due to the 2019 budget impasse,” Diokno said.
“Growth in the next three quarters can be expected to make up for the tepid first-quarter growth, so that the overall 2019 growth could still achieve the lower end of the [6-7 percent] growth target. Inflation is also expected to be slightly lower at 2.9 percent from 3 percent [the BSP’s previous forecast],” he added.
Diokno said the prognosis was global oil prices would go down in the long term because of alternative sources of energy going on stream.
“I’m not concerned about that [international oil prices]. I think it’s just like a temporary aberration,” he said.