The central bank expects the rest of 2019 and the next two years to be a period of benign consumer prices as the benefits of the law liberalizing rice imports take greater hold, combined with the effects of an expected downtrend in international crude oil prices.
In a press briefing, Bangko Sentral ng Pilipinas Deputy Governor Francisco Dakila Jr. said the monetary authority now saw the inflation rate for this year averaging at 2.6 percent—a reduction from the 2.7-percent average announced last month.
The downward adjustment was approved by the Monetary Board last week after reviewing the latest economic data and forecasts, he explained.
“The main factors that contributed to this benign inflation outlook are the continuing relaxation of constraints to food prices, in particular the tariffication of rice,” Dakila said. “We can expect further deceleration of inflation for key commodity items in the next few months.”
The official also announced that the central bank now expected the inflation rate for 2020 to average 2.9 percent (down from the previous forecast of 3 percent) and for 2021 to maintain this 2.9-percent average.
“For 2019 and 2020, the risks are evenly balanced,” Dakila said, but added that for 2021, the risks “tilt somewhat to the downside because of the prospect of slower global growth.”
Helping the benign local inflation outlook will be the tame price regime for crude oil in the global market expected to take hold over the next couple of years.
Dakila said the central bank also now saw the average prices for Dubai crude declining to $63.88 a barrel this year, down from the forecast average of $64.56 announced last month.
For 2020, the outlook for Dubai crude stood at $61.35 a barrel, but this had now been revised downward by the Monetary Board to $60.39 based on the latest available forecasts.
Last Thursday, the Monetary Board decided to cut the interest rate on the BSP’s overnight reverse repurchase facility by 25 basis points to 4.25 percent “based on the assessment that price pressures have continued to ease since the previous meeting.”
BSP Governor Benjamin Diokno later said in a television interview that he foresaw more monetary easing over the near term, including the possibility of another 25-bp rate cut next month as well as further reductions in banks’ reserve requirements by 100 bps.