BSP: Inflation manageable, tools available to monitor market
The Philippine central bank governor reiterated the monetary board’s steady monetary stance despite the current external market volatility, assuring the public the policy may not move in sync with any move by the US Federal Reserve to raise its key interest rates.
Earlier, US Fed Chair Janet Yellen warned in a speech at a symposium in Jackson Hole, Wyoming, that the case for tightening in the US had grown stronger as economic activity continued to expand, led by solid growth in household spending.
Reacting to the speech, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the outlook for Philippine consumer prices remain in line with expectations.
“Our current inflation outlook continues to be manageable,” he said in a text message to reporters over the weekend. Besides, the monetary authority has tools to keep market volatility in check, Tetangco added.
In Yellen’s speech Friday (Saturday in Manila), the US Fed chair said, “in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”
The Fed chair’s statement, the BSP governor said, was “more or less as expected, well balanced and nuanced.” If the US would indeed hike either in September or December “as Yellen’s comments indicate that they are getting closer to their next move,” the BSP need not necessarily move in sync, Tetangco added.
He also stressed the BSP was mindful that there could be some near-term financial market volatility as markets react to the Fed statement and rebalance dollar holdings.
“We will continue to monitor developments including changes in tax levies and weather-related disturbances, that could impact on domestic price and demand dynamics, and make adjustments to our monetary policy stance as appropriate,” he said.
At its August 11 meeting, the Monetary Board of the BSP decided to keep key interest rates unchanged, noting that domestic economic conditions continued to be favorable.
The rate for the reverse repurchase (RRP) facility remained at 3percent. The BSP also held the corresponding rates for overnight lending and deposit facilities steady at 3.5 percent and 2.5 percent, respectively. The reserve requirement ratio for banks was also left unchanged at 20 percent.
The central bank also lowered its inflation forecast for the year to 1.8 percent from 2 percent. Its inflation forecast for 2017 was also adjusted downward at 2.9 percent from 3.1 percent, but the forecast of 2.6 percent 2018 was unchanged.
Latest forecasts indicate that the average inflation is likely to settle slightly below the 3 percent plus or minus 1 percentage point target in 2016 and rise toward the mid-point of the target in 2017 and 2018, it said.
Aug inflation seen at 1.6% -2.4%
The central bank said inflation in August could moderate to 1.6 percent or pick up to 2.4 percent as upside and downward pressures could come from higher local oil and rice prices, and lower electricity and vegetable prices.
“The BSP forecast suggests that August inflation could settle within the 1.6 percent to 2.4 percent range,” Tetangco said in a separate text message.
Headline inflation in July held steady at the preceding months level of 1.9 percent although it was more than double the rate of 0.8 percent a year earlier. Data for August is scheduled for release by the Philippine Statistics Authority on September 6.
Tetangco said that upward price pressures may come from higher domestic oil and rice prices.
Oil companies have announced two price hikes in their oil products for the month.
“However, these could be partly offset by the decline in the power rates in Meralco-serviced areas and lower prices of selected vegetable items,” Tetangco added.
Power rates by the Manila Electric Co. (Meralco) declined by 11 centavos per kilowatt-hour this month on lower generation charges.
“Moving forward, the BSP will continue to monitor emerging price conditions to ensure price stability conducive to a balanced and sustainable economic growth,” Tetangco concluded.