The Bangko Sentral ng Pilipinas “stands ready to take the necessary policy actions” to combat inflation, according to its governor Felipe Medalla.
Finance Secretary Benjamin Diokno meanwhile said inflation may have peaked last month as oil prices have gone down.
Speaking at a forum organized by the Economic Journalists Association of the Philippines yesterday – ahead of a rate setting meeting today – Medalla said current policy settings remain supportive of economic growth and that recovery has gained traction.”We see nascent but strong economic recovery,” Medalla said.
The BSP is widely expected to raise key interest rates by half a percentage point todaay, following its surprise July rate hike, a Reuters’ survey of economists showed.
The same poll showed there were expectations for another quarter-point increase in September as the BSP was seen moving to catch up with its peers in containing inflation, which was running at at 6.4 percent in July.
Medalla himself has flagged a rate hike of 50 basis points at the Aug. 18 meeting, and further policy actions thereafter to control inflation and counter pressure on the Philippine peso.
A weaker peso, which has fallen about 9 percent this year against the US dollar – the third worst performer among Asian currencies – has added to inflation pressures amid high prices of imports.
Medalla said the BSP was committed to bring inflation back within the 2 percent-4 percent target range over the medium term.
The government is sticking to its full-year economic growth target of 6.5 percent to 7.5 percent despite the recovery from the pandemic-induced slump losing momentum in the second quarter amid soaring inflation.
In a statement, Diokno said the DOF expects inflation to start to decelerate towards the end of the year.
“Inflation hit 6.4 percent last month but I bet this has already peaked,” said Diokno.
Bright outlook
Diokno reiterated confidence in the country’s bright economic outlook, citing expected improvements in inflation, the country’s credit rating and the performance of the peso.
Diokno said the inflation rate will not have any severe impact on the Marcos, administration’s gross domestic product (GDP) growth rate targets.
He echoed socioeconomic planning Secretary Arsenio Balisacan, who had said the country’s GDP has to grow by only 5.2 percent in the second half of 2022 to reach a full year growth rate of 6.5 percent — the lower band of the government’s GDP growth target for 2022.
The Development Budget Coordination Committee has set the country’s annual GDP growth target at 6.5 to 7.5 percent for 2022, and 6.5 to eight percent in the next five years.
Diokno expressed confidence there will be no downgrades in the country’s credit rating, as the Marcos administration has crafted an economic plan that will boost investor confidence and ensure accelerated recovery.
“It is notable that despite the two-year pandemic, the rating agencies have affirmed our investment grade rating, and downgraded nearly one-third of the emerging economies and even some developed countries,” Diokno said.
“We’re confident that we have presented a medium-term fiscal plan, as stated by the President, that is credible and doable. So, we don’t expect any downgrade within the next few years. In fact, we are working for an upgrade,” he added.
Diokno is similarly optimistic about the Philippine peso returning to 55 level or even lower against the US dollar by the end of the year.
“There’s usually an influx of overseas Filipino remittances towards the fourth quarter. The peso has actually stabilized and, in fact, it’s strengthening, and so I bet it will be around 55 by the end of the year,” he said.
Activity surging back
Meanwhile, a report released by global real estate company Juwai IQI said the country’s consumer price index, after remaining low early in the pandemic, will reach 4.8 percent in 2022 and decline only slightly to 3.7 percent next year.
“Philippine economic activity was severely disrupted during the pandemic years, but activity is surging back. The resurgence is driving inflation,” it said.
“Inflation poses a risk to this high-speed economy. Forecasts are for 4.8 percent inflation in 2022. Most of this inflation is imported along with food and energy from overseas. We believe neither inflation nor higher rates will stifle this economic cycle, and the bounce back from COVID will drive several more quarters of strong growth,” it added.
The report said the country’s GDP growth is “impressive,” possibly hitting 6.7 percent this year.
“That’s the highest GDP forecast among the countries we look at here, just tipping Vietnam’s 6.6 percent. This is a profound change from the Philippines’ 2020 contraction, which was the largest in Asean,” it added. With Reuters