By Lee C. Chipongian
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. yesterday said they may still lower the 2019 inflation forecast of 3.7 percent after factoring in the slower second quarter growth when they meet for the policy stance next month.
The latest GDP numbers “has still to be (tracked) in,” said Espenilla. For the September 27 Monetary Board policy meeting, this data could cut forecasts for next year, particularly since after inflation rate has reached its peak – possibly in August – base effects will turn negative after September.
“It might affect the trajectory on the downside. We will see,” the BSP chief told reporters on the sidelines of the Economic Journalists Association of the Philippines’ (EJAP) economic forum in Manila.
“It might actually result in a lower inflation path which is a good thing,” Espenilla added.
When the BSP raised key rates by 50 basis points last August 9, the same day that the government released the GDP numbers for the second quarter, the BSP forecasting side did not factor in the latest growth numbers to its 2018 and 2019 inflation forecasts of 4.9 percent and 3.7 percent, respectively, both higher than previous estimates of 4.5 percent and 3.3 percent.
The second quarter growth of six percent was lower-than-expected, from 6.6 percent in the first quarter and 6.7 percent same time in 2017.
Espenilla said that for its sixth policy meeting for the year, they are still on a hawkish signalling stance. “A strong follow-through response continues to be an option available for the BSP for the September meeting,” he said.
In the hope of better managing the elevated inflation expectation, the BSP has often repeated that inflation will peak in the third quarter – either in August or September – before slowing down.
He said that even after the inflation has reached its peak for the year and has started to decelerate, the data-driven central bank would “have to see more numbers” to pin down the next months’ inflation path.
“It’s very hard to commit at this point of time without seeing the data. We have to revaluate everything (all the time),” he said when asked if the three rates hike – for a total of 100bps – is enough.
Espenilla said last week that they do not see inflation rate exceeding six percent for August and September. The BSP will release its August inflation range forecast within the week.
During its August 9 Monetary Board policy meeting, the BSP readjusted its inflation forecasts and announced a 2020 estimate of 3.2 percent which is within the two-four percent inflation target.
He reiterated yesterday that the BSP is keeping its “door open to take further policy action” and will stick to a BSP strong signalling “that we are very committed to returning inflation path back to the target… (as such) we have to make hard choices.”
The BSP first raised benchmark rates by 25bps in May to temper an inflation rise, and another 25bps in June to protect the 2019 inflation path. The last and most aggressive response of 50bps was to rein in an elevated inflation expectation and to ease second round effects.