BSP in low inflation rate regime: report

MANILA – Risk brought about by the high inflation rate is already history as far as the Philippines is concerned this 2019, although lingering worries on the US-China trade remain an obstacle.

The elevated rate of price increases in 2018, which peaked at 6.7 percent in September and October, made Philippine monetary officials hike the Bangko Sentral ng Pilipinas’ (BSP) key policy rates by a total of 175 basis points to help rein in inflationary expectations.

This decision complemented with the government’s fiscal measures and contributed to the deceleration of inflation rate to as low as 0.8 percent last October.

Last November, inflation started to normalize with a rate of 1.3 percent, bringing the 11-month average to 2.6 percent.

Monetary officials forecast inflation to average at 2.4 percent this year and 2.9

percent next year and the next. All of these figures are within the government’s 2-4 percent target until 2021.

Aside from the policy rate reductions this year due to slower inflation rate, monetary officials also slashed banks’ reserve requirement ratio (RRR) by as much as 400 basis points for the big banks.

This is in line with the bid to make it at par with other countries in the region.

The RRR cuts also increased efficiency of the domestic financial system as it lowers financial intermediation costly.

It also increases domestic liquidity and helps accelerate lending activities needed by the continued strengthening of the economy.

BSP Governor Benjamin Diokno, who took the helm starting March this year, said he will further bring the central bank closer to the people.

During the Bankers Reception hosted by the BSP last July, the central bank chief said “a central bank cannot operate from an ivory tower”.

“It is important that BSP stakeholders understand what we are mandated to do. It is crucial that our stakeholders trust our integrity and our capability to carry out our mandate,” he said.

The BSP has three pillars namely price stability, financial stability, and efficient payments and settlements system.