BSP noncommittal on policy easing despite lower March inflation

MANILA, Philippines — The central bank cheered the latest inflation rate, which slowed for the fifth straight month in March, but stopped short of committing to reverse the monetary policy tightening it implemented last year to combat surging prices.

In an SMS message to the press, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the 3.3 percent inflation rate for last month was “consistent” with authorities’ expectations that “inflation will continue to settle within the target range for 2019 and 2020.”

At the same time, however, the new central bank chief raised the likelihood of resurgence in inflation rate due to “the possibility of a stronger and prolonged El Niño episode together with the continued rise in global crude oil prices” which would “provide upside price pressures over the near term.”

On the other hand, Diokno said “the potential slowdown in domestic economic activity due to the budget impasse as well as continued uncertainty in the global economic environment could present downside risks to inflation.”

On Friday, the Philippine Statistics Authority (PSA) announced that March inflation rate had dropped to its lowest level in 15 months, since the 2.9 percent recorded in December 2017.

PSA data showed price increases in seven commodity groups decelerated last month, namely: food and non-alcoholic beverages; alcoholic beverages and tobacco; housing, water, electricity, gas, and other fuels; furnishing, household equipment, and routine maintenance of the house; health; communication; and restaurant and miscellaneous goods and services.

In the first quarter of 2019, headline inflation averaged 3.8 percent – within the government’s 3-4 percent target range.

Diokno had earlier advocated looser monetary policy – possibly through a reduction in banks’ reserve requirements or a cut in the BSP’s overnight borrowing rate – but has since moderated his call, saying any policy adjustment would have to be supported by economic data.

“Against  this  backdrop,  the  BSP continues  to  keep  a  close  watch  over  price  developments  in  the  country  and  shall consider  all  relevant  information  at  its  next  monetary  policy  meeting  on  9  May 2019  to  ensure  that  the  monetary  policy  stance  remains  consistent  with  the  BSP’s primary mandate  of price stability,” he said.

At present, the central bank’s key overnight rate – on which banks base their lending rates for borrowers – stand at 4.75 percent, after a 175-basis point series of anti-inflation hikes last year.

Meanwhile, banks’ reserve requirements stand at 18 percent – a level which Diokno wants to reduce substantially to help support economic growth.