RCBC chief economist Michael Ricafort (left) and ING Bank Manila senior economist Nicholas Mapa
MANILA – Economists expect the Bangko Sentral ng Pilipinas (BSP) to keep its accommodative stance despite the inflation rate deceleration to counter the possible commodity price hikes during the typhoon season and the enhanced community quarantine (ECQ).
In a report on Thursday, ING Bank Manila senior economist Nicholas Mapa said although the rate of price increases slowed anew last July to 4 percent from the previous month’s 4.1 percent, food inflation registered a faster annualized rate of 4.9 percent from last June’s 4.7 percent.
“Given the heft of the food sub-sector in the overall CPI (consumer price index) basket, we could see inflation pressures elevated in the second half of the year despite extremely soft domestic demand with the impending ECQ and ongoing recession,” he said.
The National Capital Region (NCR) will be under a two-week ECQ starting Aug. 6 as a preemptive measure against the further rise of coronavirus disease 2019 (Covid-19) infections following the detection of local transmission of the more contagious Delta variant in several parts of the country.
The ECQ is currently being implemented in the province of Iloilo and Iloilo City, as well as in the cities of Cagayan de Oro and Gingoog in Misamis Oriental. These areas have been under ECQ since July 16 and this will last until Aug. 7.
Mapa cited reports about the possibility of a 3 percent to 5-percent increase in the cost of basic food items like canned goods and noodles, as well as of fruits and vegetables due to storm damage, which he said “will all likely translate to elevated food inflation.”
“Despite possible bouts of faster inflation, we fully expect BSP to keep policy rates unchanged for the rest of 2021 and well into 2022. BSP Governor (Benjamin) Diokno has repeatedly stated his preference to provide support for the fledgling recovery and deliver monetary stimulus for as long as it is needed,” he said.
Mapa expects third-quarter economic growth to get a hit from the ECQ implementation in Metro Manila since the area accounts for around 70 percent of the country’s gross domestic product (GDP).
“With the economy reeling from the pandemic, we doubt BSP will even consider ‘pre-emptive’ recalibration of policy rates as policy tightening at this stage will definitely snuff out whatever momentum is left in the economy’s growth engines,” he added.
In a report, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said that aside from the economic impact of the ECQ and the typhoon damage on agricultural products, base effects of last year’s third-quarter inflation figures may also result in upticks in inflation rate in the third quarter this year.
“Thus, in view of the latest two-week ECQ in Metro Manila in August 2021 (unless extended), monetary policy would still be expected to remain relatively accommodative as part of the efforts to help stimulate and support recovery prospects in the economy,” he said.
Ricafort also raised the possibility of a reduction in banks’ reserve requirement ratio (RRR) from the current 12 percent “especially if inflation stabilizes further.”
He said more accommodative monetary policy would still “do more of the heavy lifting” for the economy amid lack of funds for any additional economic stimulus.
He added the economy still needs all the support measures to help sustain recovery from the Covid-19 pandemic, especially in view of the adverse economic effects of the second ECQ in NCR this month. (PNA)
