Policy rate cut still not out of question

Inflation may have slowed further to reach a new record low in June amid lower power rates and cuts in prices of certain fuel products, the Bangko Sentral ng Pilipinas (BSP) said.

Slowing inflation heading into the third quarter is widely expected, given base effects inflation last year, which peaked in July and August. This may, however, reverse as base effects wane, leading to faster increases in consumer prices.

BSP Governor Amando M. Tetangco Jr. said monetary officials were monitoring prices and were ready to make adjustments in policy settings to ensure price stability.

June inflation will likely average between 1.1 and 2 percent, the BSP said Friday. This comes from May’s record-low inflation of 1.6 percent.

The BSP, in keeping with its mandate of ensuring price stability, wants to keep inflation between 2 and 4 percent this year.

“The BSP will remain watchful of developments in price pressures and stands ready to undertake policy action to help ensure price and financial stability,” Tetangco said.

Lower June inflation may be a result of lower diesel, kerosene, liquefied petroleum gas (LPG) prices, and the decline in Metro Manila power rates. These may be offset by slightly higher rice prices, gasoline prices and tuition in June, Tetangco said.

On Thursday, the BSP announced it had kept interest rates steady following a meeting by the policymaking Monetary Board. Overnight borrowing and lending rates, the benchmarks set by the central bank, stand at 4 and 6 percent.

Tetangco warned of possible risks to inflation that may come later in the year, chief of them the effects of dry weather caused by the ongoing El Niño phenomenon. This may lead to widespread damage to farmlands, which could put pressure on the country’s food supply.

Dry weather may also hamper the ability of hydroelectric plants around the country to produce power.