GIVEN recent developments, the Bangko Sentral ng Pilipinas (BSP) said the country may overshoot the inflation target this year.
Nonetheless, with various measures to address supply chain issues, the country may still be able to “stick the landing” when it comes to the government’s inflation targets, according to BSP Governor Eli Remolona Jr.
The Development Budget Coordination Committee (DBCC) set an inflation target of 2.5 to 4.5 percent this year and 2 to 4 percent next year until 2028.
“We want to stick the landing, as they say in gymnastics,” Remolona said. “We wanna get to the target range without overshooting it too much. I think we will overshoot a little bit pero hindi kami madadapa [but we won’t fall down]. From getting to the target range, I think we can settle comfortably within the 2-4 percent target range.”
In terms of its impact on monetary policy rates, Remolona said, there are limits in terms of how much more interest rates can rise.
Remolona said the country is “nearing our full capacity” in terms of interest rates. This means, if the Monetary Board will raise interest rates on August 17, it cannot be too high.
“I think we’re very close to our full capacity at this point so that means, if we’re going to hike, we have to be very careful not to hike too much; siguro konti lang siguro muna [maybe just a little] but if we’re gonna cut, there’s room to cut. So wait until August 17,” Remolona said.
In terms of resorting to a pause, Remolona said, this will only happen if the data that Monetary Board receives is conflicting or inconsistent with each other.
“Usually, the pause is because we wanna reassess and if the data that comes are not quite consistent with each other, and we are scratching our heads [thinking, ‘what really happened’?] then the thing to do is pause. We don’t wanna raise just because we feel like raising, we wanna know why we’re raising. Isn’t that the way it should be,” Remolona said.
The BSP Governor added that the Monetary Board will take into consideration the forward guidance of the United States Federal Reserve as well as the BSP when making its decision.
This is because interest rate hikes, particularly of the US Federal Reserve, do not only impact the country’s economic growth and investment potential but also its foreign exchange rates.
“They hiked by only 25 basis points. That means what people usually look at is the differential between the target Fed funds rate and our own RRP [Reverse Repurchase] policy rate,” Remolona said.
“That differential has narrowed by 25 basis points, so normally that weakens the peso. But actually what market participants do is look forward to what will happen in the next few meetings; and looking at the next few meetings it doesn’t look like the differential will narrow further, that is why the peso remains stable despite the hike by the FOMC [Federal Open Market Committee],” he added.
Remolona said the peso moves according to the forward guidance by the BSP, not just at the differential itself or “what happens in the differential over the next few meetings.”
He said the differential right now is between 75 and 100 basis points. But, Remolona said, the more important thing is to know what happens in the six months to one-year period.
“What we observed, it’s not just the differential that matters, it’s also the forward guidance by the Fed, forward guidance by the BSP about the likelihood of future moves,” Remolona said.
“So we found when we were kinda hawkish in our forward guidance the peso actually—even with the differential narrowing—the peso actually got stronger,” he added.
Rice as driver
Rice may again be the cause of higher inflation in the coming months as Philippine Statistics Authority (PSA) data showed that prices returned to levels that were seen prior to the implementation of a law that sought to bring down the price of the staple.
On Friday, the PSA reported that inflation averaged 4.7 percent in July 2023 and was the lowest in 16 months. (Full story here: https://businessmirror.com.ph/2023/08/04/commodity-prices-hit-16-month-low-in-july-psa/).
PSA data showed, however, rice inflation averaged 4.2 percent in July 2023, the highest since February 2019 when the increase in the commodity’s prices was at 4.5 percent. The Rice Trade Liberalization (RTL) Act was implemented in March 2019.
National Statistician Claire Dennis S. Mapa said rice prices this year gradually increased starting in February when inflation for the staple posted a 2.2-percent increase; March, 2.6 percent; April, 2.9 percent; May, 3.4 percent; and June, 3.6 percent before reaching 4.2 percent in July.
Mapa said that in July, similar to June, the PSA also recorded increases in the price of all rice varieties that they monitor—regular milled, well-milled, and special rice.
Based on data, Mapa said regular milled rice prices averaged P41.50 per kilo, higher than the P41.20 per kilo in June and P39.60 per kilo in July 2022.
For well-milled rice, Mapa said the average price was at P45.50 per kilo in July, higher than the P45.20 in June and P43.90 in July 2022.
Special rice, Mapa added, averaged P54.60 per kilo in July, higher than the P54.40 posted in June and P53.10 in July 2022.
Data obtained from PSA also showed that average regular milled rice prices started climbing in March 2022 at P38.97 per kilo, while special rice, the most expensive rice variety, started increasing from P52.96 per kilo in June 2022.
Image credits: Mdvedwards | Dreamstime.com
PHL ‘may overshoot’ inflation target: BSP
Source: News Paper Radio
0 Comments