Bangko Sentral sees inflation staying benign, to keep rates low


Posted at Jan 21 2021 05:23 PM

Bangko Sentral sees inflation staying benign, to keep rates low 1
Bangko Sentral ng Pilipinas. ABS-CBN News file photo

MANILA - The Bangko Sentral ng Pilipinas said Thursday it expects inflation to remain "benign" this year allowing it to keep interest rates low to help economic recovery. 

The central bank said it expects inflation to average 3.2 percent this year, and 2.9 percent in 2022, well within the government's target inflation range of between 2 to 4 percent. 

“The baseline forecast continues to suggest a benign inflation environment over the next 24 months,” said Zeno Abenoja, Senior Director of the BSP Department of Economic Research. 

The BSP said the recent uptick in prices seen in the last few months was transitory and largely due to the effects of recent typhoons.

This echoed the earlier statement of BSP Governor Benjamin Diokno that inflation was the "least of their worries."

“The balance of risks to the inflation outlook also continued to lean toward the downside over the policy horizon due mainly to potential disruptions to domestic and global economic activity amid the ongoing pandemic,” the BSP said. 

Low domestic demand and its impact on commodity prices, as well as from the strong peso against the US dollar, the central bank said, may weigh down inflation.

However, the BSP also said there were “key upside risks to inflation” such as food supply disruptions due to weather disturbances and a rebound in global oil prices. 

“Given these considerations, the BSP is of the view that prevailing monetary policy settings remain accommodative to help quicken the economy’s transition toward a sustainable recovery.”

Inflation quickened to a 22-month high of 3.5 percent in December last year driven by higher food prices and transport costs.

This was the highest inflation rate since February 2019’s 3.8 percent. It was also the fastest since the 3.5 percent registered in March 2019. 

Last month’s inflation brought the average inflation for 2020 to 2.6 percent, the Philippine Statistics Authority (PSA) said.

Pork prices meanwhile continued to rise this year as the African swine fever (ASF) decimated hog populations across Luzon. Chicken prices have also gone up as supplies dwindled with many poultry farms having gone bankrupt last year.

The government said it is cracking down on vendors that violate the suggested retail price for commodities such as pork and chicken, but retailers say they have no choice but to hike prices amid dwindling supply. 

Official inflation figures will be released by the PSA on Feb. 5.

During its last policy meeting in December, the BSP kept the rate on the overnight reverse repurchase facility at a record low of 2 percent. The rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively.

The central bank is set to again review monetary policy on Feb. 11.

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