BSP noncommittal on policy easing despite 5th straight month of lower inflation

The central bank cheered the latest inflation rate which slowed for the fifth straight month in March, but stopped short of committing to reverse the monetary policy tightening it implemented last year to combat surging prices.

In an SMS message to the press, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the 3.3 percent inflation rate for last month was “consistent” with the authorities’ expectations that “inflation will continue to settle within the target range for 2019 and 2020.”

At the same time, however, the new BSP chief raised the possibility of a resurgence in the inflation rate due to “the possibility of a stronger and prolonged El Niño episode together with the continued rise in global crude oil prices,” which would “provide upside price pressures over the near term.”

On the other hand, Diokno said “the potential slowdown in domestic economic activity due to the budget impasse as well as continued uncertainty in the global economic environment could present downside risks to inflation.”

On Friday, the Philippine Statistics Authority (PSA) announced that the March inflation rate had dropped to its lowest level in 15 months, or since the 2.9 percent posted in December 2017.

PSA data showed that price increases in seven commodity groups decelerated last month, namely: food and nonalcoholic beverages; alcoholic beverages and tobacco; housing, water, electricity, gas and other fuels; furnishing, household equipment and routine maintenance of the house; health; communication; and restaurant and miscellaneous goods and services.

In the first quarter of 2019, headline inflation averaged 3.8 percent—within the government’s 3-4 percent target range.

Diokno earlier advocated looser monetary policy—possibly through a reduction in banks’ reserve requirements or a cut in the BSP’s overnight borrowing rate—but has since moderated his call, saying any policy adjustment would have to be supported by economic data.

“Against this backdrop, the BSP continues to keep a close watch over price developments in the country and shall consider all relevant information at its next monetary policy meeting on 9 May 2019 to ensure that the monetary policy stance remains consistent with the BSP’s primary mandate of price stability,” he said.

At present, the central bank’s key overnight rate—on which banks base their lending rates for borrowers—stands at 4.75 percent, after a 175-basis point series of anti-inflation hikes last year.

The banks’ reserve requirements stand at 18 percent—a level which Diokno wants to reduce substantially to help support economic growth.