TIGHT RATES. The Bangko Sentral ng Pilipinas (BSP) said keeping its key rates "sufficiently tight" is necessary, given that inflation remains above the government's 2 percent to 4 percent target band and is expected to remain high until next year. This comes even as inflation rate decelerated to 4.9 percent in October from September's 6.1 percent. (PNA file photo)
MANILA – The Bangko Sentral ng Pilipinas (BSP) considers keeping its key rates tight as appropriate as it sees continued elevated inflation rate in the coming months despite a deceleration in October.
The slower annual rate of price increases, primarily of heavily weighted food and non-alcoholic beverages, contributed to the slower annual inflation in October to 4.9 percent from the previous month’s 6.1 percent, bringing the 10-month average to 6.4 percent.
In a statement issued Tuesday night, the central bank noted that last month’s inflation print is lower than its 5.1 percent to 5.9 percent forecast for the month given the lower prices of vegetables and rice, which offset the upward movement in utility rates.
“Nonetheless, the inflation path in the coming months is still seen to remain elevated with the 2024 central forecast shifting closer to the upper end of the inflation target range, indicating persistent price pressures. Inflation expectations have also risen further, highlighting the risk of second-round effects,” it said.
The central bank said risks to the inflation outlook are projected to remain on the upside until 2025 due to the possible impact of higher transport fares, upticks in power rates and oil prices, higher-than-expected minimum wage adjustment outside Metro Manila, non-extension of Executive Order 10, or the validity of reduced import duty rate; elevated domestic food prices, and the impact of El Niño of food prices and utility rates.
These factors, are however, seen to be countered by the effect of “a weaker-than-expected global recovery and successful implementation of government measures to mitigate the impact of El Niño weather conditions are possible primary downside risks to the outlook.”
These factors, along with the results of the third-quarter domestic growth, which is scheduled to be announced by the Philippine Statistics Authority on Thursday, will be among the major considerations during the rate-setting meet of the central bank’s policy-making Monetary Board (MB) on Nov. 16, the BSP said.
“The Monetary Board deems it necessary to keep monetary policy settings sufficiently tight until inflation expectations are better anchored and a sustained downtrend in inflation becomes evident,” it said.
“The BSP remains prepared to undertake further monetary policy action as necessary to prevent supply-side pressures on prices from leading to additional second-round effects and dislodging inflation expectations.”
The MB announced an off-cycle 25 basis points increase in the central bank's key policy rates on Oct. 26, bringing the target reverse repurchase rate to 6.5 percent, given the expectations of continued elevated domestic inflation rate. (PNA)
