Monetary policy to stay vigilant – BSP officials
Even as inflation loses steam
The lower November inflation of six percent from September-October’s 6.7 percent confirms that it is heading back to the two-four percent target range for 2019 and 2020 but monetary action will remain vigilant amid uncertainty in the global markets, according to Bangko Sentral ng Pilipinas (BSP) officials.
“The November headline inflation at six percent is very encouraging. For the first time, we are seeing significant negative month-on-month growth after inflation plateaued at around 6.7 percent (October),” said BSP Governor Nestor A. Espenilla Jr., adding that inflation will settle back to within the target band due to “decisive” non-monetary measures to control high food prices and the sharp decline in global oil prices.
But Espenilla said they need to pay closer attention to core inflation which rose to 5.1 percent in November from 4.9 percent in October. Core inflation excludes selected volatile food and energy items to measure underlying price pressures.
BSP Deputy Governor Diwa C. Guinigundo said the November turnout validates their view that the 2018 inflation process “was and continues to be driven by supply factors including oil and rice prices. When oil and rice prices started to decline both in the global and domestic markets, domestic inflation is trending down. In fact, inflation peaked as early as in September but very few recognized the small but actual turnaround.”
Guinigundo said that with the encouraging trends in both oil and rice prices and other key food commodities, the BSP would be looking to lower forecasts for 2019 and 2020, currently at 3.5 percent and 3.3 percent, respectively, as of November 15 estimates.
“While the BSP will remain data dependent when the Monetary Board meets next week, it is quite clear that inflation has started to lose momentum and that should be considered in the discussion of the next monetary policy move,” said Guinigundo.
Espenilla said strong monetary action “has significantly reinforced the anti-inflation process through the expectations route and a firmer peso.” However, its more direct impact on economic activity will take a longer time to take hold, he said.