MB seen to keep current BSP rates

October 26, 2018

An economist of ING Bank Manila discounted additional adjustments in the Bangko Sentral ng Pilipinas (BSP) key policy rates next month, noting that domestic inflation may have already peaked last September.

Citing Philippine Statistics Authority (PSA) data, Nicholas Mapa said in a report the rate of price increases of several food items have decelerated and this, along with lower utility rates and oil prices “bode well for the inflation outlook.”

He said the price of regular milled rice in seven of the country’s 17 regions dropped by PHP1 to date, with the week-on-week drop registered at about 0.5 percent.

The prices of vegetables have also declined – carrots by 40 percent; native pechay and cabbage, 50 percent; and potato, 12.5 percent, he said.

Mapa said the Manila Electric Company (Meralco) announced a cut in its rates and oil companies have rolled back prices of their products.

“All these positive developments increase the likelihood that inflation has peaked in 3Q with the October print seen to settle at roughly 6.5 percent year-on-year,” he said.

The economist partly attributed this to the government’s efforts to ensure a steady supply of food items, such as rice and vegetables, as well as hikes in the BSP’s key policy rates.

The central bank’s policy-making Monetary Board (MB) increased key rates by a total of 150 basis points this year alone to temper inflation expectations.

Monetary officials, however, said monetary policy actions are not enough to address the faster inflation rate, prompting Malacañang to issue memoranda directing various government agencies to ensure an adequate supply of rice, vegetables, meat and fish.

These issuances include Administrative Order (AO) No. 13, which removes non-tariff barriers and streamlines administrative procedures on the import of basic agricultural commodities.

The Office of the President also issued Memorandum Order (MO) No. 26, which directs the Department of Trade and Industry and the Department of Agriculture (DA) to implement measures that would reduce the gap between farm-gate and retail prices of agricultural products.

It has also issued MO 27, which directs the DA, the Department of the Interior and Local Government, and the Metropolitan Manila Development Authority (MMDA) to ensure an efficient and seamless delivery of imported agricultural and fishery products from ports to markets.

MO 28, meanwhile, directs the National Food Authority regarding the immediate release of some 230,000 metric tons (MT) of rice in its warehouses nationwide and the immediate distribution of the 100,000 MT of rice that have been contracted and are expected to be delivered by the end of last month.

“The fruits of such measures are now being reflected on the ground, validating our earlier expectation that inflation had peaked in September, affording BSP some leeway to pause at its November meeting,” Mapa added.

The BSP has been tightening key rates in a bid to help address the spike in inflation rates, which reached 6.7 percent last September.

In the first nine months of the year, inflation averaged at 5 percent, higher than the government’s 2 percent to 4 percent target but within the economic managers’ assumption of 4.8 percent to 5.2 percent for this year.

Economic managers have said that inflation is projected to return to within-target levels in 2019.