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BSP to continue to support recovery

THE CENTRAL BANK will continue to maintain support for the economy’s weak recovery, as inflation is expected to slow down in the last months of the year, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

“The BSP will remain vigilant over the current inflation dynamics to ensure that the monetary policy stance continues to support economic recovery to the extent that the inflation outlook will allow,” Mr. Diokno said at a virtual forum of The Asset late Tuesday.

“It will carefully scan the operating environment with a forward-looking perspective to move in a preemptive fashion that will address any risk for our price stability mandate,” he added.

Inflation eased to 4.8% in September from the 32-month high 4.9% in August, amid slower rise in prices of food and transport. Inflation has mostly exceeded the 2-4% target by the central bank, except in July when it settled at 4%.

“We look at the items in the consumer price index. There are more items below the 2% rather than at 4%,” Mr. Diokno said, noting that supply issues will gradually be resolved in the next few months.

“The government is already allowing the importation of pork and it is now coming in. We’re confident that even when inflation is slightly above our target range of 2-4%, inflation will slowly go down where we want it to be maybe before the end of the year,” he said in a separate Bloomberg TV interview on Wednesday.

The Monetary Board last month kept the interest rates unchanged at a record low, even as it raised its full-year inflation forecast to 4.4%.

Average inflation for 2022 and 2023 is expected to settle at 3.3% and 3.2%, higher than the previous 3.1% forecast for both years but already within their target.

There are worries that elevated consumer prices may hurt the Philippine economy’s recovery at a time when mobility restrictions are being loosened to spur business activity.

However, Mr. Diokno said the recent price spikes are “transitory,” noting higher transport fare and wage hikes are unlikely given the current unemployment figures.

“In fact, as a result of the normalization, I expect transport costs to decline… (And) the pressure usually on the demand side will be wages. That’s not going to happen because of the unemployment and because there’s excess capacity in the economy,” he said.

The country’s unemployment rate stood at 8.1% in August, a four-month high.

Mr. Diokno said the BSP is “already talking” about the appropriate timing of unwinding policy support.

“A decision on the timing and circumstances under which BSP will scale back its pandemic-induced support measures would depend primarily on the evolution of various domestic factors, as well as global developments and spillovers. BSP policies are data-driven and will avoid the premature withdrawal of policy stimulus while also safe hedging against emerging risk to our price and financial stability objectives,” he said.

At the same time, Mr. Diokno said he does not think the US Federal Reserve’s upcoming tapering of asset purchases “will have a significant impact” on the local economy.

“The Philippines is better prepared for this. You have hefty gross international reserves. And in the past, whenever there is a crisis, we run out of dollars to service our debts. That’s not going to happen this time. Because we have hefty gross international reserves. And we continue to have inflows from overseas Filipino remittances,” he said.

Security Bank Corp. Chief Economist Robert Dan J. Roces said the BSP may keep its monetary policy steady this year even amid the threat from higher prices.

“The BSP will likely want to support recovery first by remaining accommodative until the end of the year, probably giving businesses some leeway to recover in the fourth quarter,” Mr. Roces said in a Viber message.

Mr. Roces said the BSP’s first rate hike may likely happen in the second half of 2022, “when most of the population has been fully vaccinated and assuming no further risks of variant outbreaks.”

“Policy normalization is seen to be more apt for next year once recovery exhibits stability, and price growth starts showing demand-driven pulls to manifest a consumption-led rebound,” he added.

The central bank will have two more policy reviews this year scheduled on Nov. 18 and Dec. 16. — Luz Wendy T. Noble

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