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Inflation in Dec. and Jan. could fall below target range due to strong year-earlier base — BSP

inflation in dec and jan could fall below target range due to strong year earlier base bsp - Inflation in Dec. and Jan. could fall below target range due to strong year-earlier base — BSP

HEADLINE INFLATION in the next few months could momentarily fall below the official 2% to 4% target range set by the Bangko Sentral ng Pilipinas (BSP) due to the strength of the year-earlier price comparison, BSP Deputy Governor Francisco G. Dakila, Jr. said.

“It is possible that during the end part of 2020, as well as in early 2021, there could be some months — actually we’re looking at December and January — when inflation will go below the target range, that is below 2%. It can be emphasized, however, that this is purely due to base effects,” Mr. Dakila said.

Inflation in December 2019 and January 2020 were at 2.5% and 2.9%, respectively.

Mr. Dakila said the temporary decline will not be a factor in setting monetary policy.

“This is something that is very temporary, this is not something that should be a major basis for setting monetary policy,” he said.

“What’s more important is for 2021, the baseline projection now stands at 2.8%. And this is very much within the inflation target range. The 2022 forecast is actually at 3% which is exactly at the mid-point of the target,” Mr. Dakila added.

In September, the consumer price index rose 2.3%. This brought inflation to 2.5% year to date, higher than the BSP’s revised forecast of 2.3% for this year but still well within the range.

The BSP said the benign inflation environment as well as the manageable inflation outlook gives it ample room to effect monetary easing measures with which to support the economy during the pandemic.

This year, the central bank has slashed rates by 175 basis points, reducing the overnight reverse repurchase, lending, and deposit rates to record lows of 2.25%, 2.75%, and 1.75%, respectively.

“The negative real interest rate is a reflection of the policy stance of the BSP. The accommodative policy stance is supportive of economic activity as a whole. It will at least temper the impact of restrictions during the pandemic,” Mr. Dakila said.

“The additional liquidity should allow (businesses to boost funding and to raise their balance sheets at a time of low interest rates. This is true for both property developers and for the rest of the economy,” he added. — Luz Wendy T. Noble

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