Muted Sept. prices confirm low inflation view over medium term, says BSP

The lower rate of price increases in September is a strong indication that Philippine inflation will   remain muted over the medium term, especially with the coronavirus pandemic continuing to dampen demand, according to the central bank.

In a statement, Bangko Sentral ng Pilipinas Governor Benjamin Diokno nonetheless pointed out that the monetary regulator has provided enough liquidity support to buttress the country’s economy which is facing a sharp contraction this year.

“The latest inflation outturn is consistent with the BSP’s prevailing assessment that inflation is expected to remain benign over the policy horizon, with the balance of risks tilting toward the downside due largely to the impact on domestic and global economic activity of possible deeper economic disruptions caused by the pandemic,” he said.

On Tuesday, the government announced that September 2020 inflation declined to 2.3 percent from the previous month’s 2.4 percent, thanks to cheaper food items. The latest inflation number was, however, higher than the unusually low 0.9 percent recorded in the same period last year, which was due to the rice tariffication law, among others, which capped local food prices.

The latest inflation rate was within the BSP’s forecast range of 1.8–2.6 percent.

“The significant monetary policy easing and liquidity-enhancing measures undertaken by the BSP and the timely implementation of fiscal measures in the Bayanihan 2 Act are seen to provide sufficient support to economic recovery in the coming months,” Diokno said.

He added that authorities now see “indications of gradual improvements in manufacturing and external demand as quarantine protocols are further relaxed here and abroad, [which] could also bolster sentiments going forward.”

Despite the low inflation rate regime, ING Manila senior economist Nicholas Mapa said the central bank will be in no rush to ease interest rates further.

“With the economy in recession, consumer demand remains anemic as unemployment stays elevated at around 10 percent as of the first half of the year,” he said in a note to reporters.  “Despite the anemic trend in price movements, we do not expect BSP to react with a policy adjustment in the near term given recent comments from Governor Diokno.”

“We do not expect BSP to resort to additional rate cuts for the balance of the year as Diokno waits to gauge the impact of his recent flurry of rate cuts carried out earlier in the year,” Mapa added.

For this part, the central bank chief said monetary authorities “will continue to evaluate the transmission of BSP’s policy actions to the economy along with the recently approved fiscal measures to address the economic costs of the public health crisis.”

“The BSP 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,” Diokno said. [ac]