Amid 8-week fuel price hikes, BSP says inflation ‘manageable’

INQUIRER FILE PHOTO/ JAM STA ROSA

MANILA, Philippines—Despite the increase in fuel prices in eight successive weeks, the Bangko Sentral ng Pilipinas (BSP) said inflation rate in goods and services remained to be manageable and would allow low interest rates to prevail.

The statement came as current inflation rate breached the government’s official target range.

Using this premise, the BSP said domestic interest rates were likely to be kept at historic lows in a continuing bid to jumpstart growth that has been ravaged by the COVID pandemic.

In a statement, the BSP said risks to the inflation outlook went upward but was “broadly balanced” for 2022 and 2023.

“Upside risks could emanate from pressures on international commodity prices amid improving global demand and lingering supply-chain bottlenecks,” the BSP said.

Faster inflation was also possible because of “the potential effects of weather disturbances and a possible prolonged recovery from the ASF outbreak,” said the agency, referring to African swine flu which has decimated hog population in many parts of the Philippines.

“Meanwhile, the continued risk of COVID-19 infections continues to pose downside risks to the outlook, as possible delays in the lifting of containment measures could further dampen global growth and domestic demand,” the central bank added.

The BSP stressed that the pace of recovery of the economy—which shrank by a record level in 2020—would depend heavily on timely measures to ensure public safety and health.

All eyes would be on the government’s vaccination program. Recalibration of quarantine protocols should help support economic activity while protecting people’s health, said the BSP.

So far, the central bank has consistently maintained its accommodative monetary policy settings over the past few months after aggressively releasing liquidity into the domestic financial system at the start of the pandemic in 2020.

At its latest monetary policy meeting, the BSP decided to keep its key overnight borrowing rate at 2 percent, pointing to latest forecasts showing that average inflation is likely to be above the government’s 3 to 4 percent target in 2021. It was expected to ease toward the middle of the target range in 2022 and 2023.

“Together with appropriate fiscal and health interventions, keeping a steady hand on the BSP’s policy levers amid a manageable inflation outlook should allow the economic recovery to gain more traction,” the BSP said.

It reiterated its calls for the “effective implementation of direct non-monetary measures” which, it said, were crucial in tempering inflation caused by nooses that are killing supply.

“Looking ahead, the BSP will remain vigilant against any emerging risks to the outlook for inflation and growth, in order to ensure that monetary policy settings remain in line with its price and financial stability objectives,” the agency added.

TSB