Prices of basic goods and services are expected to rise only at a modest pace over the next four years, which means that the cost of borrowing will remain affordable in the foreseeable future, according to the central bank.
In a statement, the Bangko Sentral ng Pilipinas (BSP) said the government has set an inflation target rate of 3 percent, plus or minus one percentage point, for 2021 and 2022 during the latest meeting of the Duterte administration’s economic managers.
At the same time, the Development Budget Coordination Committee—in consultation with the central bank—also set the same inflation target range of 3 percent for 2023 and 2024.
Under the inflation-targeting framework for monetary policy, the goal is defined in terms of the average year-on-year change in the consumer price index over the calendar year.
“This announcement of the medium-term inflation target is in line with the BSP’s commitment to transparency and accountability as well as the forward-looking approach in the conduct of monetary policy,” the central bank said.
Both inflation targets, as approved by economic managers, continued to be “an appropriate quantitative representation of the medium-term goal of price stability that is optimal for the Philippines given the current structure of the economy and outlook of macroeconomic conditions over the next few years,” the BSP added.
The assessment of factors that could influence inflation suggested a manageable inflation environment over the near term with the latest central bank forecasts indicating that prices would settle within the 3-percent zone at least over the next two years.
“Moreover, inflation expectations are expected to remain firmly anchored to the national government’s target,” the agency said.
For 2023 and 2024, inflation is largely expected to be influenced by the pace of economic recovery in the postpandemic period.
The Philippine economy is expected to regain momentum as the health crisis is sufficiently addressed, while macroeconomic policies gain full traction in reviving the economy. Nonetheless, the COVID-19 pandemic could lead to structural changes in supply and demand factors that determine the level of inflation as well as affect the country’s future productive capacity.
According to the central bank, this reinforced the important role of the inflation target as an important guidepost for policymakers in ensuring inflation remained low and stable, which would be conducive to long-term economic growth.
“Going forward, the BSP will continue to monitor closely price developments and ensure that the monetary policy stance remains appropriate in keeping inflation within target,” it said. INQ