BSP expects softer prices in near term

MANILA, Philippines — Malacañang welcomed as a “positive development” the easing of the country’s headline inflation to 2.4 percent in August from 2.7 percent last July although the figure also suggested that economic activity remained slow as the country crawled through its worst recession in decades.

Presidential spokesperson Harry Roque said the slow inflation of prices was a “positive development” because it kept prices of basic goods stable, ensuring that Filipinos would not go hungry.

“Keeping the prices of basic commodities stable in this period of global health crisis and economic uncertainty remains our topmost priority. This is in line with the vow of President Duterte that no Filipino gets hungry amid the COVID-19 pandemic,” the Palace official said in a statement.

He added that the government will “continue to monitor prices of basic goods and make sure there is unhampered flow in the movement and delivery of essential commodities to other places, notwithstanding the localized actions imposed in some areas.”

Roque made the remarks after the Philippine Statistics Authority reported that inflation slid to 2.4 percent in August from 2.7 percent last July.

Roque also assured the public, including about seven million jobless Filipinos, that the government would continue its agricultural policies and programs to boost food production in the long-term, saying it was “encouraged by data showing the agriculture sector’s resilience and proving the effectiveness of the President’s policies and programs for farmers and fisherfolks.”

On the other hand, the Bangko Sentral ng Pilipinas (BSP) was more cautious and said price pressures on basic goods and services would likely remain muted over the near term with the lower-than-expected inflation rate coming below its own forecast.

BSP Gov. Benjamin Diokno said the August inflation rate of 2.4 percent was lower than the BSP’s forecast range of 2.5 to 3.3 percent, “but is consistent with the expectation that inflation will remain benign over the policy horizon.”

“The balance of risks tilts toward the downside owing largely to potential disruptions to domestic and global economic activity of the ongoing pandemic,” he said.

The headline inflation eased in August from 2.7 percent in July, which brought the year-to-date average to 2.5 percent. This was primarily due to the deceleration in the inflation for the heavily-weighted food and non-alcoholic beverages, which slid to 1.8 percent during the period, from 2.4 percent in the previous month.

Given this scenario, the central bank said the prevailing interest rate environment and ample liquidity in the financial system—reflecting the BSP’s policy of significant monetary easing and liquidity enhancement—were seen to provide sufficient support to economic activity.

To date, the central bank has cut key interest rate by a total of 175 basis points during the course of the COVID-19 pandemic, reduced banks’ reserve requirement ratio by 200 basis points, extended a slew of relief measures for financial institutions, and lent to the Philippine government some P300 billion through direct bond purchases. All told, the BSP has infused an estimated P1.3 trillion into the domestic financial system to buttress the economy.

As such, Diokno said that “early signs of recovery in domestic activity are being noted, with further improvements expected as containment measures are relaxed further, and firms and households adjust better to the post-pandemic operating environment.”

“The BSP will continue to evaluate the transmission of the BSP’s policy actions to the economy along with the recently approved fiscal measures to address the public health crisis,” he added, as he affirmed that the central bank “stands 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.”