BSP sees steady inflation rate in May

The steady increase in fuel prices in May—after dropping sharply in the previous month at the height of the lockdown imposed to fight the coronavirus pandemic—may have pushed the country’s inflation rate to accelerate slightly, according to the central bank’s economists.

In a statement on Friday, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the institution’s forecasters were expecting this month’s pace of price hikes to have risen between 1.9 and 2.7 percent, with a so-called point inflation projection of 2.3 percent.

If this proves accurate, this would mark a marginal increase from the official April inflation rate of 2.2 percent.

“Higher domestic oil prices as well as the uptick in the prices of various agricultural products due to supply bottlenecks and the impact of Typhoon ‘Ambo’ contributed to positive price pressures during the month,” the central bank chief said.

He added that electricity rates in areas served by Manila Electric Co. also declined during the month despite the reported increase in the total electricity bill due to higher consumption, contributing to the BSP’S projection.

The central bank’s latest baseline forecasts indicate that inflation could settle at the low-end of the government’s target range of 3 percent, plus or minus 1 percentage point, specifically at 2 percent for 2020 and 2.5 percent for 2021.

With the inflation rate expected to remain benign, the central bank will also have room to extend more help to the financial system by way of looser monetary policy, if necessary.

In response to the ongoing coronavirus pandemic, regulators have so far cut policy rates by 125 basis points and the reserve requirements of financial institutions by 200 basis points.

It has extended banks a set of relief measures meant to be passed on to their borrowers in the form of cheaper loans as well as forbearance for existing credit that may fall into distress due to the weakened economic activity.

The central bank has also extended a P300-billion loan to the national government by buying bonds issued by the Bureau of the Treasury and scooped up other debt instruments from the local debt market.

“Moving forward, the BSP will remain watchful of economic and financial developments, and stand ready to take necessary policy actions to ensure the delivery of its primary mandate of price stability,” Diokno said.