By Lee Chipongian
With easing price pressures, the Bangko Sentral ng Pilipinas (BSP) left benchmark overnight rate unchanged Thursday after five straight rate hikes.
BSP Assistant Governor Francisco G. Dakila Jr. said that given indications of tempered price pressures, the Monetary Board thought it prudent to keep monetary policy steady for now, and to allow previous monetary responses such as raising the rates by 175 basis points to curb high inflation, some time “to work their way through the economy.”
“The Monetary Board emphasizes that it remains vigilant against developments that could affect the outlook for inflation and financial stability (and that) the BSP is prepared to take further policy action as appropriate to safeguard its price stability mandate,” said Dakila.
The BSP’s overnight reverse repurchase (RRP) facility is unchanged at 4.75 percent. The rates on the overnight lending and deposit facilities were also untouched at 5.25 percent and 4.25 percent.
The BSP also reduced its 2019 and 2020 inflation forecasts, as well as its 2018 inflation estimate which is now 5.2 percent from 5.3 percent earlier, during its November 15 Monetary Board policy meeting.
For next year, inflation rate is projected to average 3.18 percent and 3.04 percent for 2020. These numbers are lower than previous forecast of 3.5 percent and 3.3 percent, respectively, for 2019 and 2020.
Dakila said they now expect an earlier return to the two-four percent baseline inflation target than estimated last November 15. He said that by the end of the first quarter 2019, they expect inflation to be below four percent compared to a previous assessment that inflation will only hit below four percent by the end of the first semester next year.
“This is a significant shortening of the time period where we would be above the inflation target band (of four percent) because in the previous policy meetings, we were still expecting for the first half of 2019 (above four percent) and going back within the target band only by the second half of the next year,” according to Dakila.
He said the BSP remains data-dependent but they are also “prepared to take further policy action as appropriate to safeguard its price stability mandate.”
Dakila noted that the main drivers behind the moderation in inflation is the normalization in food supply and with the signing into law of the rice tariffication bill, this will further normalize prices particularly rice.
Plus, the BSP’s outlook on fuel prices have also declined. “Crude prices have been elevated for some time (but now it) continues to decline and our outlook is quite close to $60 per barrel in 2019,” he added.
Dakila said the recent headline inflation readings “indicate signs of receding price pressures as constraints on food supply continue to ease with the implementation of various non-monetary measures.” He said inflation expectations have also steadied given the decline in international crude oil prices and the stabilization of the peso.
He also said that the “risks to the inflation outlook have become more evenly balanced for 2019 and leans toward the downside for 2020 amid a more uncertain global economic environment, which could further mitigate upward pressures from commodity prices in the coming months.”
The market had expected a no-change monetary policy stance after inflation in November fell to six percent from September-October’s 6.7 percent. This is after hiking benchmark rates by a cumulative 175 basis points in the last five Monetary Board policy meetings, or since May this year.
Still, the BSP is maintaining a hawkish stance, that it will not hesitate to tweak policy rates if warranted or price pressures re-emerge or become more apparent. The BSP has already communicated its concern about rising core inflation.
The country’s headline inflation reading has increased for 10 straight months until it reached its peak in September-October, both nine-year highs.
Most analysts think the BSP will maintain current policy rates for the rest of 2019 with inflation seen falling to within the two-four percent target for the next two years, and with the exchange rate market becoming more stable below P53:$1.