MID-TERMS: LITTLE IMPACT ON INFLATION

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo says next year’s mid-term elections are not expected to contribute much to the movement of consumer prices

The upcoming mid-term elections will have no or little impact on the movement of consumer prices, a top official of the Bangko Sentral ng Pilipinas (BSP) said.

While consumption and spending are expected to increase, the mid-term elections will have minimal contribution to inflation, unlike during national elections where spending significantly impacts the national growth, said BSP Deputy Governor Diwa Guinigundo.

“We expect high spending in the first and second quarter of the year, but it will only have minimal impact on inflation,” said Guinigundo.

He added they have factored in the impact of next year’s election and the 2022 elections in their growth forecasts.

The mid-term election is scheduled on May 13. In Commission on Elections (Comelec) Resolution 10429, the poll body set the election period from Jan. 13 to June 12.

Guinigundo earlier told Cebuano stakeholders that the 2018 inflation rate is not expected to be persistent and recurrent in the next two years, as the country’s inflationary environment has shown significant deceleration.

The BSP expects to end the year with 5.2 percent inflation rate and 4.3 percent (from 3.7 percent) and 3.2 percent respectively, for 2019 and 2020.

Moreover, the BSP expects the peso to gain strength versus the US dollar in the last quarter of the year.

Guinigundo said this will be influenced by strong inflows of remittances, high business process management (BPM) receipts, and high tourism arrivals to the country as well as the crude price plunge in the global market.

Money sent home by overseas Filipino workers reached US$23.7 billion, up by 2.4 percent for the first nine months of 2018.

“On the domestic side, in terms of supply and demand, we are seeing more inflows this quarter. On the external side, we are seeing an optimistic outlook,” said Guinigundo.

He explained that they are seeing a positive outcome of China and the US’ (trade war) discussion. US Fed, on the other hand, has also kept their interest rates steady and oil prices in the global market is going down, which send signals in the market that there’s less dollar to buy to fund imports of petroleum products.

Given this improving environment, the BSP official said the recovering stance of the peso versus US dollar is set continue in 2019, as the outlook on inflation is down next year.

“We expect the peso to follow the positive outlook on inflation,” said Guinigundo.

In past interviews, ATR Asset Management (Atram) Group chief investment officer Phillip Hagedorn projected the Philippine peso to settle between P52 and P56 against the US dollar, calling it the “new normal” for the Philippines.

“Of course that would depend on the inflows and the demand,” said Hagedorn.

“I don’t think we will be able to see (an exchange rate) of P48 again in the near future” he added. “If you are an investor you need to hedge on that.” The peso has rebounded sharply in recent weeks, after hitting a 13-year low of 54.35 against the greenback last Sept. 25.

The exchange rate of US$1 to peso on Wednesday, Nov. 21 settled at P52.5.