MB minutes: Risks to inflation balanced

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Risks to future inflation remain broadly balanced, monetary authorities noted last month when they decided to keep policy rates unchanged and trimmed this year’s outlook on consumer prices.

Highlights of the Monetary Board’s September 24 meeting, released on Thursday, cited downside risks from external factors and government underspending. An inflation uptick, meanwhile, could come from higher power prices and a worse-than-expected dry spell.

“Slower global economic activity, fiscal underspending and petitions for lower transport
fares continue to pose downside risks while potential adjustments in electricity rate given pending petitions and the impact of stronger-than-expected El Niño conditions are the upside risks to inflation,” the minutes state.

The Board noted that the global economy was expanding at a moderate pace but prospects remained uneven.


“Economic growth in the US, euro area and Japan picked up pace, while activity declined across emerging markets, particularly in China and Russia,” it said.

The Board also stressed that a growth slowdown in China and soft conditions in the rest of East Asia had clouded the outlook for the global economy.

In terms of fiscal developments, it said that stepped-up public spending in July, which turned the fiscal surplus into a deficit for the first seven months of the year, should help sustain growth momentum.

However, it noted that the national government’s P18.5-billion fiscal deficit in the first seven months of 2015 was lower than the P55.7-billion gap recorded a year earlier.

It should be noted that a week later, the government reported that its budget balance had swung back to a surplus in August, narrowing the year-to-date deficit.

The August budget surplus was P15 billion, trimming the year-to-date shortfall to just P3.4 billion, well below the P197.2 billion targeted for the period and the year’s P283.7-billion goal.

The Monetary Board, meanwhile, also observed that electricity rates had fallen for a fourth consecutive month in September due to lower generation costs from suppliers.

Lastly, it noted that sea surface temperatures in August 2015 reflected El Niño conditions gradually intensifying to a strong level.

“The consensus of El Niño Southern Oscillation prediction models indicate that the El Niño conditions in August have strengthened and will likely persist until the end of 2015, with around 75-percent chance that it will continue until May 2016,” it said.

Dry spells have already hit farms across the nation and the government has readied measures to keep supplies and prices stable.

On September 24, the Monetary Board decided to keep key interest rates unchanged but trimmed its inflation forecast for 2015 to 1.6 percent from 1.8 percent.

The Bangko Sentral ng Pilipinas’ overnight borrowing and lending rates were kept at 4 percent and 6 percent, respectively. The special deposit account rate stayed steady at 2.50 percent while the reserve requirement ratio for banks remained at 20 percent.

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