Diokno sees inflation slowing to below 2% in next 2 quarters
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said he still expects inflation to keep below the two-percent level in the next two quarters as the rate will “continue on its downward path” and “monotonically drop” for the rest of the year.
“We expect inflation to be lower than two percent in the third and fourth quarter of the year because of the collapse of oil prices and generally (due to) the recession there will be less demand for commodities globally (so that will reduce prices),” said Diokno in a recent online media chat.
Diokno, commenting on the latest inflation number of 2.1 for the month of May from 2.2 percent in April, said Friday that the rate is “consistent with the prevailing assessment by BSP that inflation is expected to remain benign over the policy horizon due largely to the adverse impact of the coronavirus pandemic on the domestic and global economy.”
“The latest baseline forecasts indicate that inflation is likely to settle below the midpoint of the government’s target range of two-four percentage point for 2020 and 2021,” he added.
Diokno reiterated that the domestic economy will expand in a U-shaped recovery path and that it is “expected to bounce back to its potential output growth in 2021 once the impact of the governments fiscal and monetary measures gain traction.”
On Thursday, he said he is looking at between seven to nine percent GDP potential growth in 2021.
The BSP, in a separate statement, said the domestic economic activity is projected to follow a U-shaped quarterly recovery. “Growth is expected to accelerate back to the potential output growth in 2021 once the impact of government policy support measures gains traction,” it said.
In the meantime, Diokno said the volatility of oil prices “remains a source of inflation risk (while) global rice prices continue to increase owing to lower output among major rice producers in the ASEAN region amid the ongoing drought in the Mekong Delta.”
As the government slowly eases on its lockdown measures to slowly open up the economy, Diokno said it is urgent that there will be “carefully coordinated measures” to cushion and “ease the adverse effects of the coronavirus pandemic on individuals and firms, with a view toward preventing any long-lasting economic and social damage.”
“In addition to the monetary policy actions that have been deployed so far, the BSP stands ready to use all available measures in its policy toolkit as it continues to assess the impact of the global pandemic on the domestic economy and the Filipino people,” said Diokno.
The BSP had forecasted a May inflation range of 1.9 percent to 2.7 percent, with a 2.3 percent midpoint rate.
“Inflation has monotonically dropped from 2.9 percent in January to 2.6 percent in February to 2.5 percent in March to 2.2 percent in April and now to 2.1 percent in May,” said Diokno.
ING economist Nicholas V. Mapa, in the meantime, said the lower-than-projected May inflation gives BSP the leeway to decide to cut the policy rates anew. The Monetary Board has reduced the key rates by 125 basis points in the first quarter.
“Decelerating inflation and the need to provide additional stimulus to an economy headed for a recession sets up a possible BSP rate cut at the June 25 meeting as unemployment data surged to 17.7 percent,” noted Mapa.