BSP sees little impact of peso depreciation on PH price inflation

MANILA – Bangko Sentral ng Pilipinas (BSP) deputy governor Diwa Guinigundo discounts any negative impact on domestic inflation of the sustained weakness of the peso, which closed Thursday to its more than three-month low against the greenback.

The peso finished the trade at 50.345, sideways from the 50.290 in the previous session.

It is now on its third consecutive day of being in the 50- level against the US dollar after Federal Reserve officials hinted of the possibility of more rate hikes for the year, after the total of 75- basis point increase in December 2016 and in March and June this year, even as inflation remained below the Fed’s two percent target.

Guinigundo, in a briefing, said Fed officials had claimed that even as inflation remained below t heir t arget, l abor conditions had tightened and expected to eventually result in higher inflation.

“Because of that the market thought that that is a definitive clue or a guidance that they would continue tightening monetary policy or normalizing monetary policy in the US. That means one more time for the end of the year and two to three times in 2018,” he said.

Guinigundo, however, pointed out that weakness of the l ocal unit was not expected to provide inflationary pressures since exchange rate pass through had declined.

The BSP adopted the inflation-targeting framework starting in January 2002 to achieve the monetary policy’s objective of price stability that is supportive of domestic growth.

Guinigundo said the decline in the exchange rate pass through “gives us additional flexibility in terms of monetary policy.”

“We can see higher or more movements, more flexibility in the exchange rate movements but without necessarily getting that translated to higher inflation,” he added.

On Thursday, t he central bank’s policy- making Monetary Board ( MB) maintained the BSP’s key rates because “inflation environment continues to be manageable.”

In the first five months of the year, domestic rate of price increases averaged at 3.1 percent, slightly above the middle of the government’s two to four percent target for 2017 until 2020.

Last May alone, inflation decelerated to 3.1 percent after staying at 3.4 percent last March and April.

The MB, on Thursday, cut the BSP’s average inflation projection for the year to 3.1 percent from 3.4 percent last May.

The 2018 projection was maintained at three percent. It also announced its 2019

projection, which is also three percent.