BSP cuts inflation forecasts on cheaper fuel, stronger peso

The central bank expects the Philippine economy to enjoy lower inflation this year and next year amid an expected decline in average petroleum prices globally and an appreciation of the peso that will improve the buying power of importers.

In a press briefing, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said the monetary regulator was expecting inflation rate for 2019 to come in at an average of 2.7 percent, revising the 2.9 percent forecast set just last month.

The forecast for the range of increase of prices of basic goods and services for 2020 was also cut slightly to 3 percent, from the previous expectation of a 3.1-percent average.

The outgoing central bank deputy chief—who will reach mandatory retirement age next month—said lower crude oil prices and a stronger local currency were considered by the Monetary Board when it decided to reduce the inflation forecast during its meeting last Thursday.

“In May, we assumed a $68.90 per barrel for 2019 and $67.10 for 2020,” Guinigundo said. “In [Thursday’s] meeting, there was a reduction in the assumption from $68.90 per barrel to $64.56.”

The central bank also now expects the average price of Dubai crude to drop to $61.35 per barrel next year.

Petroleum prices play a significant role in the domestic inflation rate, as it affects the production cost of goods and services and the transportation fares paid by consumers.

Guinigundo said that, apart from the expected moderation in fuel prices over the near term, the Philippine economy would also be able to reap the benefits of a stronger peso vis-a-vis other international currencies.

“For 2019, we expect the peso to be around P52.01 [to $1], and for 2020, some appreciation to around P51.50,” he said. Previous to Thursday’s meeting, the Monetary Board held an exchange rate assumption of P52.06 for 2019 and P51.78 for 2020.

Guinigundo said the policy making body also considered the lower actual inflation for May, the lower economic growth rate in the first quarter of the year, the decrease in electricity rates distributed by Manila Electric Co. and the lower prices of selected food products.

He noted Congress’ recent move to impose a 40-percent tariff on some imported meat products was effectively overturned by an executive fiat that restored the tariff rate to 5 percent.