BSP sees muted Oct. inflation as cheaper utility bills offset rising fuel costs
BSP Governor Benjamin Diokno. INQUIRER file photo / EARVIN PERIAS
MANILA, Philippines — The head of the central bank predicted on Friday that the average price increases of basic goods and services for October would match that of the previous month, as higher fuel costs are offset by cheaper utility bills.
In a mobile phone message to reporters, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the agency’s planners expect this month’s inflation rate to come in at 2.3 percent, unchanged from September’s level.
The central bank’s Department of Economic Research, meanwhile, projected the October 2020 inflation to settle within the 1.9 – 2.7 percent range.
“Higher electricity rates in Meralco-serviced areas, increases in liquefied petroleum gas and kerosene prices, and the impact of weather disturbances on selected food items contributed to upward price pressures for the month,” the BSP said.
“These could be partly offset by lower prices for gasoline, diesel, and rice as well as downward adjustments in the water rates of Manila Water- and Maynilad-serviced areas,” it added.
If the central bank’s projection holds, the low inflation regime will allow it to retain its flexibility for infusing more liquidity into the financial system to buttress the local economy if it so wishes.
Diokno earlier said the monetary regulator has infused approximately P1.9 trillion — or $39.2 billion at the current exchange rate — in liquidity into the economy.
This is equivalent to 9.6 percent of gross domestic product.
The amount includes the new provisional advance of P540 billion which will be released to the national government this month to help it fund its response to the Covid-19 public health crisis.
The central bank has so far released a record amount of liquidity into the local financial system through various mechanisms, including interest rate cuts, direct loans to the national government for Covid-19 response expenses and regulatory relief measures for banks.
Since the onset of the pandemic, the regulator has cut its key interest rate by a total of 175 basis points and banks’ reserve requirement ratio by 200 basis points.
But Diokno said he wants to see more evidence that the economy will put ay additional cash that is released into the financial system to good use before he eases monetary policy further.
Recently, the Monetary Board maintained the interest rate on its key overnight reverse repurchase facility — on which banks price their own loans — at 2.25 percent.
“Looking ahead, the BSP will remain watchful of economic and financial developments to ensure that its primary mandate of price stability conducive to balanced and sustainable economic growth is achieved,” he said.
