The government has decided to keep its 2-percent to 4-percent inflation target for this year until 2016, and approved the same target range for 2017 to 2018, in line with the assessment that inflation rate in the country will remain manageable in the medium team.
“The current 3.0 percent + – percentage point (or 2 percent to a 4 percent) fixed annual target for 2015-2016 set by the government remains well attuned to the dunamics of the Philippine economy,” the Bangko Sentral ng Pilipinas (BSP) said in a statement issued on Tuesday.
“In particular, this target is consistent with the country’s economic growth objective of 7 percent to 8 percent for both years,” the BSP said.
Accord Capital Equities Corp. analyst Justino Calaycay said that given the prevailing stance of central banks across the globe—coupled with an earlier urging by the International Monetary Fund to adopt monetary easing—the BSP’s inflation targets seem well anchored.
Calaycay said that the current inflation target range will gain even more validity if the huge drop in global oil prices will translate to lower prices at the local pump, lower costs for manufacturers and more savings for consumers.
“While we may see the number tend towards the higher end of the band going into next year’s election cycle, only a sudden jerk in oil prices may threaten this target,” he said.
In an opposing view, Emilio Neri Jr., lead economist at the Bank of the Philippine Islands said the government’s decision to lower the inflation target may prove to be “premature” if commodity prices surprisingly bounce back and the developed economies exhibit a more convincing growth recovery.
The economist noted that the 2 percent to 4 percent inflation target range would have been more credible if progress in de-clogging logistical bottlenecks in the Philippines had been moving faster in the last four years.
“Unfortunately efforts to address our vulnerability to price pressures (attributable to supply bottlenecks) seem to be moving at snail’s pace,” he said.
“Despite the availability of funding and the willingness of the private sector to participate, infrastructure build up has lagged far behind the growth of one of the world’s most vibrant economies,” he concluded.
Meanwhile, the monetary authority said that the approved medium-term inflation target of 2 percent to 4 percent for 2017 to 2018 is based on the recent assessment of current and prospective inflation trends which indicates a manageable outlook over the medium term.
The monetary authority explained that the government’s inflation target is defined in terms of the average year-on-year change in the consumer price index (CPI) over the calendar year.
The multi-year target presents a long-term view on inflation and fosters greater predictability which helps economic decision-making by businesses, households, and other economic agents, it said.
The announcement of the target is in line with the BSP’s commitment to greater transparency and accountability in its conduct of monetary policy, it noted.
“Structural changes in inflation dynamics and improvements in the economy’s productive capacity support a low inflation environment that is consistent with the economy’s growth trajectory,” it said.
The BSP further said that inflation has been within target in the last six years and is expected to remain so over the medium term.
Moreover, the central bank said its credible commitment to price stability has kept inflation expectations well anchored to the target.
“Going forward, the BSP will continue to monitor price developments to ensure that the monetary stance remains appropriate in keeping inflation within target, thus safeguarding price stability,” it said.