Central bank ready to act as price pressures persist

The central bank slightly raised its average inflation forecast for 2023 to 5.6% from 5.4% previously. — PHILIPPINE STAR/MIGUEL DE GUZMAN

THE BANGKO SENTRAL ng Pilipinas (BSP) stands ready to act as necessary to address any risk to inflation, which is still seen to fall within the 2-4% target range by fourth quarter this year, an official said.

BSP Deputy Governor Francisco G. Dakila, Jr. said inflation will fall within the 2-4% target range in the fourth quarter, barring unprecedented supply shocks. 

“Nevertheless, we continue to see that the risks to the inflation outlook have remained tilted towards the upside both for this year and for next year,” he said during the Philippine Economic Briefing in Dubai on Tuesday.

“The BSP remains ready to respond as necessary to any risks that threaten the achievement of the inflation target.”

Inflation accelerated for the first time in seven months in August, as food and transport costs surged. Inflation rose to 5.3% in August, marking the 17th consecutive month that inflation surpassed the BSP’s 2-4% target.

For the January-to-August period, inflation averaged 6.6%, still above the central bank’s 5.6% full-year forecast.

Mr. Dakila said August inflation was largely due to weather-related disturbances in the country, which drove up the prices of food items such as rice, vegetables, and fish.

“In the absence of further supply shocks, risks continue to lean towards the upside over the near term. Hence, the case for vigilance remains,” he said.

Mr. Dakila said the BSP would like to see inflation go back to within the 2-4% target band before any policy easing is considered due to the need to anchor inflation expectations.

The Monetary Board has paused for a third straight meeting in August, keeping its key policy rate at a near-16 year high 6.25%. From May 2022 to March 2023, the central bank hiked benchmark interest rates by 425 basis points (bps).

“On the BSP’s part, the Monetary Board is set to convene and decide on the policy stance next week, on Sept. 21. As always, our focus remains on ensuring price stability conducive to sustainable and non-inflationary growth,” Mr. Dakila, adding that it will also take into consideration the US Federal Reserve’s next move.

However, Mr. Dakila noted that “the situation is now very different compared from where we were last year, when inflation is still in an upward trajectory.”

“Right now, the focus of the Monetary Board will be on domestic situations. The impact of external factors will be less compared to last year,” he said, adding that the peso has stabilized this year.

The Fed’s next meeting is on Sept. 19 to 20. It hiked borrowing costs by 25 bps at its meeting in July, bringing the Fed funds rate to 5.25-5.5% — its highest level in 22 years. — Keisha B. Ta-asan

Neil Banzuelo

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