BSP sees upward inflationary pressures in November

After being on a downtrend for most of the year, central bank economists are expecting the prices of basic goods and services in the local economy to have risen slightly for the month of November, due primarily to higher power costs.

In a press statement, the Bangko Sentral ng Pilipinas (BSP) said its Department of Economic Research was seeing the inflation rate for the 11th month of the year to have settled within the 0.9–1.7 perauthority cent range.

“The increase in electricity rates as well as higher prices of gasoline, liquefied petroleum gas and selected food items are seen as the primary sources of upward price pressures for the month,” the BSP’S economists said.

This latest forecast is skewed toward the upside compared to the prediction of 0.5-1.3 percent that it made for October, for which the official inflation rate was later announced to have hit a 42-month low of 0.8 percent.

The Philippine Statistics is scheduled to announce the consumer price index for November on Dec. 5, Thursday.

The central bank had earlier said it expected inflation rate to have bottomed out in October and prices of basic goods and services would start creeping up to more normal levels toward the holiday season.

At the same time, however, the BSP said the upward pressures for the inflation rate in November “could be tempered by lower domestic rice prices and the appreciation of the peso.”

“Looking ahead, the BSP will remain watchful of evolving inflationary conditions to ensure that the monetary policy stance remains consistent with the BSP’S price stability mandate,” the central bank economists said.

While BSP Governor Benjamin Diokno had earlier said monetary authorities were done easing monetary policy this year, either through interest rate cuts or reductions in bank reserve requirements, he said more recently that a further lowering of the central bank’s key policy rate before year-end was not out of the question—something that the November inflation rate would help determine.

According to ING Bank Manila’s senior economist, Nicholas Mapa, the central bank chief had reiterated that policy adjustments tended to operate with a lag, ostensibly as adjustments to the policy rate would take time to be adopted by banks when loans reprice.

As pointed out by Diokno, the lag lasts roughly six to nine months and that the Philippine economy could now just be feeling the combined effects of the 2018 rate hike barrage and the 2019 “rapid fire” rate reduction.

To date, total cuts made by the BSP to the amount of cash banks must keep immobilized in their vaults stood at 4 percentage points since Diokno took the central bank’s reins earlier this year. Each percentage point releases up to P100 billion in cash into the financial system.

On top of these string of reserve requirement cuts, the central bank has also cut its key interest rate by a total of 75 basis points this year.