MANILA, Philippines — Inflation likely quickened to 3.9 percent in March mainly due to base effects, the Bangko Sentral ng Pilipinas (BSP) said in a forecast that hovered closer to the upper end of its 2 to 4 percent target range
“It would be close to 4 percent. I think 3.9 percent, but we’ll see,” BSP Governor Eli Remolona Jr. told reporters on Wednesday.
Remolona’s projection means inflation has potential to outpace the 3.4 percent rate recorded in February. But the good news is that inflation is expected to stay within the BSP’s target range for the fourth straight month.
READ: Inflation breaks 4-month downtrend with 3.4% spike in Feb
Overall, a further uptick in inflation would likely convince the BSP to stay hawkish or biased for tight monetary settings for much longer to avoid upsetting inflation expectations.
At the moment, the BSP is still concerned about higher transport charges and electricity rates, as well as costlier oil and domestic food prices. The central bank is also wary of the additional impact on food prices of a strong El Niño episode.
At its meeting last month, the Monetary Board left its key rate unchanged at 6.5 percent, the highest in more than 16 years, in what the BSP called a “prudent” move amid persistent risks to the inflation outlook.
The BSP had said inflation would ease this first quarter before overshooting the target anew in the second quarter as favorable base effects fade. Average price hike is projected to return to the target band in the third quarter to average 3.6 percent this year.
BSP seen staying hawkish
According to Remolona, the urge to stay hawkish is also preventing the BSP from further slashing banks’ reserve requirement ratio, which would inject more liquidity into the local financial system and may potentially stoke inflation.
But the BSP chief said it would not wait for the US Federal Reserve to cut rates before making its own easing moves.
“We don’t have to wait for them. We watch them very closely,” Remolona said.
“We read what the different members of the FOMC (Federal Open Market Committee) say … It will affect our exchange rate. But I think we don’t have to put a lot of weight on what they do—unless the market goes crazy, unless they overreact and the peso somehow weakens sharply. Then we’ll have to react more decisively. But we don’t expect that,” he added. INQ