The pace of price increases in the country will likely remain in check for the foreseeable future due to the impact of the COVID-19 pandemic, the central bank said on Wednesday (Aug. 5).
It came after the government released the official inflation rate for July of 2.7 percent.
In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the latest inflation rate was also within the BSP’s forecast range of 2.2–3 percent.
“The latest inflation outturn is consistent with the BSP’s prevailing assessment that inflation is expected to remain benign,” said Diokno, attributing this largely “to the potential adverse impact of COVID-19 on the domestic and global economic prospects.”
The latest baseline forecasts of the central bank also indicated that inflation is likely to settle close to the mid-point of the government’s target range of 3 percent, plus or minus 1 percentage point, for 2020 to 2022.
“The contraction in domestic economic activity is seen to have bottomed out in the second quarter of 2020,” Diokno said.
“For the rest of year, output is expected to decline at a slower pace as firms and households gradually adjust to post-pandemic conditions,” he said.
This relatively benign price regime maintains the elbow room available to BSP’s Monetary Board to continue supporting the growth of the local economy with the prevailing low interest rate regime.
To date, the central bank’s various measures have released a total of P1.3 trillion into the financial system — equivalent to 6.4 percent of the country’s gross domestic product — to buttress the Philippine economy that is poised to experience its first contraction in decades.
It has also cut key interest rate, which banks use to price their own loans, by a total of 175 basis points since the coronavirus pandemic started.
Earlier this year, the central bank’s policy-making Monetary Board approved a 200-basis-point reduction in the reserve requirements of universal and commercial banks and non-bank financial institutions with quasi-banking functions.
More importantly, gross domestic product growth is expected to recover in 2021 as government policy support measures fully gain traction, the central bank chief added.
The government is set to announce the country’s second quarter performance numbers on Thursday (Aug. 6) morning, and market watchers expect the local economy to have contracted sharply during this period.
“The Monetary Board will consider the latest inflation outlook along with the release of the second quarter GDP at the upcoming monetary policy meeting on Aug. 20, 2020,” Diokno said.
The BSP, he added, “remains ready to deploy all available measures in its toolkit in fulfillment of its policy mandate as it continues to assess the impact of the global health crisis on the domestic economy.”