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BSP forecasts August inflation at 2.5%-3.3% range

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno announced Friday that they expect August inflation to settle within the forecast range of 2.5 percent to 3.3 percent.

The low end of the forecast of 2.5 percent is the June actual rate which increased to 2.7 percent in July.

For the month of August, the central bank said the strong peso vis-à-vis the US dollar is helping with price pressures.

The “higher domestic prices of gasoline and LPG provide upward price pressure during the month,” according to the BSP Department of Economic Research (DER). But the decrease in power rates could pull prices lower, it added. “These (higher fuel costs) could be offset in part by the continued decline in Meralco power rates and the sustained appreciation of the peso along with broadly stable food prices.”

The BSP said it will “continue to monitor emerging price developments to ensure that its primary mandate of price stability conducive to balanced and sustainable economic growth is achieved.”

The BSP recently revised its inflation forecasts for 2020 to 2.6 percent from 2.3 percent (June 25 Monetary Board policy meeting), and also raised the 2021 and 2022 forecasts to three percent from 2.6 percent, and 3.1 percent from three percent.

 “The risks to the inflation outlook are seen as tilted to the downside, relating mainly to the potential impact on global and domestic economic growth prospects of a more disruptive COVID-19 pandemic,” said Diokno on Thursday during his regular press chat.

The government expects inflation to settle within the range of 1.75 to 2.75 percent this year adjusted from its previous two-four percent target, because of the pandemic which resulted to a stalled economy and the recession. For 2021 and 2022, the BSP target is still two-four percent.

The BSP could keep interest rates low which is already in negative rate in real terms, as they are confident that settings remain appropriate. After raising the benchmark rate by a cumulative 175 basis points since February, the Monetary Board decided to take a prudent pause last August 20 and kept the policy rate at 2.25 percent.

 “It can be said that at this juncture, it is appropriate (to keep policy rate) settings steady and to allow our previous policy responses to work their way fully through the economy and we will continue to look at the outlook for inflation and economic data in order to guide our policy,” said BSP Deputy Governor Francisco G. Dakila Jr. during the August 20 policy meeting.

With a 2.25 percent BSP rate versus an inflation average of 2.5 percent and a higher inflation forecast of 2.6 percent for 2020, the BSP’s accommodative policy stance has led to a negative real policy rate.


Source: Manila Bulletin (https://mb.com.ph/2020/08/30/bsp-forecasts-august-inflation-at-2-5-3-3-range/?utm_source=rss&utm_medium=rss&utm_campaign=bsp-forecasts-august-inflation-at-2-5-3-3-range)

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