ING Bank Manila senior economist Nicholas Mapa
MANILA – The country’s inflation rate was projected at around 2.3 percent in September due to lower demand, drop in energy prices, and stronger peso, an ING Bank Manila economist said Thursday.
“Price gains will dip from the previous month despite base effects as the economy remains in recession while crude oil prices reflect a global downturn, helping cap utility prices and the recent pickup in transport costs,” ING Bank Manila senior economist Nicholas Mapa said in a report.
The inflation rate last August slowed to 2.4 percent after two consecutive months of upticks, with the July figure at 2.7 percent.
The average inflation in the first eight months this year stood at 2.5 percent, at the lower half of the government’s 2 to 4-percent target band until 2022.
Amidst expectations for a sustained slowdown of the domestic inflation rate, Mapa discounted a cut in the Bangko Sentral ng Pilipinas’ (BSP) key policy rates during the rate-setting meeting of the policy-making Monetary Board (MB) Thursday after noting that BSP Governor Benjamin Diokno “continues to monitor the impact of his more than PHP1.5 trillion (and counting) infusion into the financial system.”
He was referring to the impact of several measures that monetary authorities have implemented since the start of the year that includes a total of 175 basis points reduction in the BSP’s policy rates, the up to 200 basis points cut in banks’ reserve requirement ratio (RRR), and the PHP300 billion extended to the national government through a repurchase agreement for the purchase of government securities.
“Additional bouts of RRR reduction will also likely be shelved for now given the liquidity situation,” Mapa said.
Meanwhile, Mapa said the focus now is the MB’s decision on the request of the national government for another budget support from the central bank amounting to PHP540 billion.
On Wednesday, Diokno said the government made a request for a provisional advance from the central bank that will be settled on or before Dec. 29, 2020.
He said the request will be forwarded to the MB “soon” but declined to elaborate pending the Board’s decision.
Mapa said the national government’s request for cash advance will “likely be approved at today’s (MB) meeting.”
He said “although not technically debt monetization, these cash advances carried out via repurchase agreements can be considered as de facto debt monetization, which has become more mainstream in light of the ongoing pandemic.”
“However, we believe that the national government has enough options for financing given the amount of excess liquidity in the system (+PHP1.5 trillion) coupled with the recovery of revenue collections with the need for the cash advance with BSP not as urgent as the situation in March. Furthermore, fiscal authorities have signaled that spending would remain modest in 4Q (fourth quarter) and the risk to BSP’s credibility likely outweighing the need to carry out such unconventional agreements,” he added. (PNA)