MANILA – Economists continue to see unchanged policy stance from the Bangko Sentral ng Pilipinas (BSP) this year unless second-round effects from the elevated inflation rate come out.
After a five-month rise, the domestic inflation rate eased to 4.5 percent last March from the two-year high of 4.7 percent in the previous month, resulting in an average of 4.5 percent in the first quarter this year.
In a report, ING Bank Manila senior economist Nicholas Mapa said last month’s inflation remains above the government’s 2-4 percent target band, but he cited the deceleration on account of the slower rise of food inflation.
Mapa said the slower inflation rate of the food index, which accounts for almost 36 percent of the consumer price index (CPI), is partly due to price freeze particularly for meat products.
This situation, he said, countered the acceleration of the transport index which was traced to higher global oil prices and the social distancing measures in public transportation.
The inflation rate surpassed the government’s target band since last January but monetary authorities remain firm on keeping key policy rates steady, saying non-monetary measures are the primary measure that will address the supply-side factors of the elevated inflation rate.
Mapa thus expects the BSP to keep key rates steady “in order to bolster the economic recovery with several regions now under strict lockdown due to a recent spike in new Covid-19 (coronavirus disease 2019) infections.”
“BSP will only consider recalibrating monetary policy should second-round effects such as wage hikes become apparent or if inflation expectations become disanchored,” he said.
He added, “receding concerns about inflation may calm the local bond market in the near term while PHP (Philippine peso) is expected to outperform regional peers as soft import demand limits depreciation pressure.”
In a report, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the two-week enhanced community quarantine (ECQ) in the National Capital Region (NCR) and four nearly provinces namely Bulacan, Rizal, Cavite, and Laguna from March 29 to April 11 is expected to dampen demand and economic activities, thus ease inflationary pressures.
He said the start of the dry season is also a plus in terms of food supply after the supply of agricultural products was hit by the typhoons in the latter part of last year.
Non-monetary measures such as the 60-day price cap on pork and chicken prices and the proposed importation of meat products are also seen to ease inflationary pressures.
While these non-monetary measures are expected as the more effective solution to the supply constraints that push inflation higher, Ricafort said monetary officials are expected to remain on the lookout for any second-round effects, such as petitions for higher fare and electricity rates.
He said monetary interventions will be needed “if there would be evidence of second-round inflation effects in able to prevent inflation from eating further the already reduced budgets of the most vulnerable sectors.” (PNA)