Inflation to go down in October; peso weakness to ease – BSP
Published Sep 18, 2018 12:00 am
By Lee C. Chipongian
With both monetary and non-monetary measures such as rice importation as support, the Bangko Sentral ng Pilipinas (BSP) is more confident now that the high inflation will start coming down starting October.
BSP Deputy Governor Diwa C. Guinigundo. (MANILA BULLETIN )
And, with a consistent strong follow-through monetary action by the BSP when the Monetary Board meets next week (September 27) for either a 25 or 50 basis points rate hike to address high inflation, the central bank expects the peso to regain some of its lost ground with the next policy action.
BSP Deputy Governor Diwa C. Guinigundo said they are assured that non-monetary measures are being implemented as scheduled and while the BSP could still not say if inflation has peaked in August with 6.4 percent, they are keeping to their earlier projection that the peak rate is either August or September, despite the yet-to-be-confirmed amount of damage to crops and roads on areas hit by supertyphoon “Ompong” over the weekend.
“There are more mitigating measures, there’s rice importation and the rice tariffication etc. We would expect that inflation will start coming down in the last quarter of the year and on to the next two years (to within the two-four percent target),” Guinigundo told reporters on the sidelines of the Duterte government’s economic team briefing yesterday, ahead of the economic and infrastructure officials’ conference.
When asked if the BSP’s charts still show an above six percent inflation for September, Guinigundo said -- “it’s hard to tell at this point … there’s too many balls in the air.”
Charts-wise, it looked like the inflation has peaked in August. To ensure this, the government is releasing 4.6 million bags of NFA rice, plus another 250,000 metric tons arriving this month or in October. “So, any possible damage to the rice industry (by typhoons) will be partially addressed by NFA importation. Another 250,000 MT next quarter (will be even better) and on top of that, you have the harvest season, it will add supply to the general market.”
The additional rice supply is the most important non-monetary measures, particularly the immediate relief of the 4.6 million bags of rice from NFA warehouses which will be delivered to retail outlets. “Rice accounts for more than nine percent of total CPI basket so to the extent that we have more than enough supply of rice, we do expect some mitigation from that end and hopefully for the last quarter of the year, the rice tariffication bill will be approved by Congress,” said Guinigundo.
As for the exchange rate volatility, the expected strong monetary response next week will address the weak peso as “collateral benefit,” he said.
“(Stronger peso) is the collateral benefit of a vigilant monetary policy,” said Guinigundo. “We base our monetary policy on the dynamics of inflation today, the expectation and then the outlook. We also look at monetary conditions, prices and on that basis, we set monetary policy. Now to the extent that we need to tighten monetary policy and in the process achieve such collateral benefit of addressing the volatilities in the exchange market, (then that’s) fine. And, if that will further establish the credibility of the BSP, (also) fine. We will accept it.”
The peso will have the needed support from the fourth quarter remittances – which traditionally is very robust on account of the holiday season – and earnings from the BPOs will contribute “in a bigger way.”
“This is the holiday season so we would expect that the exchange rate will start shaping up. As you know, for every one percentage increase or depreciation (in the peso) will produce 0.06 percentage point (increase or decrease) in inflation,” said Guinigundo.
BSP Deputy Governor Diwa C. Guinigundo. (MANILA BULLETIN )
And, with a consistent strong follow-through monetary action by the BSP when the Monetary Board meets next week (September 27) for either a 25 or 50 basis points rate hike to address high inflation, the central bank expects the peso to regain some of its lost ground with the next policy action.
BSP Deputy Governor Diwa C. Guinigundo said they are assured that non-monetary measures are being implemented as scheduled and while the BSP could still not say if inflation has peaked in August with 6.4 percent, they are keeping to their earlier projection that the peak rate is either August or September, despite the yet-to-be-confirmed amount of damage to crops and roads on areas hit by supertyphoon “Ompong” over the weekend.
“There are more mitigating measures, there’s rice importation and the rice tariffication etc. We would expect that inflation will start coming down in the last quarter of the year and on to the next two years (to within the two-four percent target),” Guinigundo told reporters on the sidelines of the Duterte government’s economic team briefing yesterday, ahead of the economic and infrastructure officials’ conference.
When asked if the BSP’s charts still show an above six percent inflation for September, Guinigundo said -- “it’s hard to tell at this point … there’s too many balls in the air.”
Charts-wise, it looked like the inflation has peaked in August. To ensure this, the government is releasing 4.6 million bags of NFA rice, plus another 250,000 metric tons arriving this month or in October. “So, any possible damage to the rice industry (by typhoons) will be partially addressed by NFA importation. Another 250,000 MT next quarter (will be even better) and on top of that, you have the harvest season, it will add supply to the general market.”
The additional rice supply is the most important non-monetary measures, particularly the immediate relief of the 4.6 million bags of rice from NFA warehouses which will be delivered to retail outlets. “Rice accounts for more than nine percent of total CPI basket so to the extent that we have more than enough supply of rice, we do expect some mitigation from that end and hopefully for the last quarter of the year, the rice tariffication bill will be approved by Congress,” said Guinigundo.
As for the exchange rate volatility, the expected strong monetary response next week will address the weak peso as “collateral benefit,” he said.
“(Stronger peso) is the collateral benefit of a vigilant monetary policy,” said Guinigundo. “We base our monetary policy on the dynamics of inflation today, the expectation and then the outlook. We also look at monetary conditions, prices and on that basis, we set monetary policy. Now to the extent that we need to tighten monetary policy and in the process achieve such collateral benefit of addressing the volatilities in the exchange market, (then that’s) fine. And, if that will further establish the credibility of the BSP, (also) fine. We will accept it.”
The peso will have the needed support from the fourth quarter remittances – which traditionally is very robust on account of the holiday season – and earnings from the BPOs will contribute “in a bigger way.”
“This is the holiday season so we would expect that the exchange rate will start shaping up. As you know, for every one percentage increase or depreciation (in the peso) will produce 0.06 percentage point (increase or decrease) in inflation,” said Guinigundo.