April 23, 2018, 8:08 am
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Key rates maintained; inflation manageable

The Monetary Board yesterday kept steady the key rates of the Bangko Sentral ng PIlipinas on its assessment that the outlook for the inflation environment has been broadly unchanged.

The Department of Finance (DOF) also sees the inflation rate remaining at a manageable level in the short term at the least, after increases in consumer prices eased to 3.3 percent in November from a peak of 3.5 percent a month ago.

During yesterday’s policy stance meeting, the last for this year, BSP’s overnight reverse repurchase (RRP) facility was kept at 3.0 percent.  The corresponding interest rates on the overnight lending and deposit facilities were also kept steady. 

The reserve requirement ratios were likewise left unchanged.

Nestor Espenilla, BSP Governor, said latest baseline forecasts show inflation remaining within the target range of 2 and 4 percent for this year up to 2019.

“Inflation expectations also continue to be firmly anchored to the target over the policy horizon,” Espenilla said.

At the same time, Espenilla said the overall balance of risks to the inflation outlook remains tilted toward the upside due in part to possible higher crude oil prices. 

“While there may be potential transitory effects on consumer prices from the proposed tax reform program, various mitigation measures and the resulting improvement in output and productivity are also expected to temper the impact on inflation over the medium term,” Espenilla said.

Meanwhile, Espenilla said the proposed reforms in the rice industry involving the replacement of quantitative restrictions with tariffs and the deregulation of rice imports could serve to reduce inflation.

The Monetary Board, according to Espenilla, also observed that geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies continue to pose downside risks to the near-term prospects for global economic growth.  

“Nonetheless, the Monetary Board emphasized that prospects for domestic economic activity are likely to remain firm owing to buoyant consumer and business sentiment and ample liquidity. Moreover, as credit continues to expand in line with output growth, the Monetary Board remains watchful over evolving liquidity and credit conditions and their implications for price and financial stability,” Espenilla said.

Based on these considerations, Espenilla said the Monetary Board believes that prevailing monetary policy settings should be kept. 

“Nevertheless, the BSP will remain vigilant against any risks to the inflation outlook and will adjust its policy settings as needed to ensure that future inflation remains consistent with the medium-term target while being supportive of sustainable economic growth,” Espenilla added.

Gil Beltran, Finance undersecretary, said the average of 3.2 percent from January to November was well within the target range of the government. 

“Core inflation of 3.3 percent suggests that in the foreseeable short-term, inflation will be manageable,” Beltran said.

Data showed that price increases in food and non-alcoholic beverages for November eased to 3.2 percent from 3.6 percent the month before. 

Other commodity groups that recorded lower price increases were rice, 1.0 percent from 1.1 percent; alcoholic beverages and tobacco, 6.1 percent from 6.8 percent; clothing and footwear, 1.8 percent from 1.9 percent; and education, 2.2 percent from 2.3 percent.

The commodity groups that posted higher price increases were housing, utilities and fuels, 4.2 percent from 4 percent; electricity, gas and other fuels, 9.7 percent from 9.1 percent; transport, 4.4 percent from 4.2 percent; recreation and culture, 1.6 percent from 1.5 percent; and restaurants and miscellaneous services, 2.9 percent from 2.6 percent.

Meanwhile, the commodity groups that maintained their level of price increases for the month of November were furnishings and household equipment, 1.8 percent; health, 2.2 percent; and communication, 0.4 percent.

Electricity rate per kilowatt hour for households consuming 200 kW in November increased to P9.63 from P9.28 a month ago. Also, the price of diesel per liter in the National Capital Region increased to P35.46 from P34.51 a month ago. Gasoline also increased to P48.48 from P46.89 in October.

Earlier, the DOF projected that inflation rate in November slowed to 3.2 percent from its intra-year high of 3.5 percent last October owing mainly to more stable food prices after the previous month’s weather disturbance.

In an economic bulletin, the DOF said the stable prices of food might offset the faster increases in the prices of fuel and power rates for the month.

Despite the expected faster price increases, the DOF remained optimistic that the country’s strong fundamentals, as shown in the manageable inflation levels, would help sustain rapid growth and investment in the country.

“Adequate supply of goods from higher production will further dampen inflation rise in the future. This will likewise temper the rise in interest rates despite the ongoing Fed tightening,” the DOF said.  —with A. Celis
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