By Melissa Luz T. Lopez, Senior Reporter
INFLATION could “revert more quickly” to below four percent next year given non-monetary interventions to boost food supply coupled with sound policy actions from the Bangko Sentral ng Pilipinas (BSP), a senior official said.
BSP officer-in-charge Deputy Governor Maria Almasara Cyd N. Tuaño-Amador said on Friday that a mix of the central bank’s recent tightening moves as well as measures implemented by the Executive should help temper the pace of price increases next year.
“A sound monetary policy action continues to be directed towards safeguarding the medium-term inflation target,” Ms. Tuaño-Amador said during a press briefing on Friday.
“Our inflation forecast pointed to a possible breach of the target in 2019, but inflation could revert more quickly towards the target given the timely implementation of non-monetary measures including the reforms in the country’s rice importation policy and more importantly as policy rate hikes continue to work its way through the system.”
The central bank has tightened rates by a total of 150 basis points (bp) since May, including a back-to-back rate hike worth 50bp during their August and September meetings as a show of force to rein in inflation expectations.
These rate hikes came as inflation maintained its ascent since the start of the year as new taxes kicked in, worsened by surging oil prices and food supply issues exerted pressure on the cost of basic goods.
Inflation surged to a fresh nine-year high of 6.7% in September, which brought the nine-month average to five percent which is well above the original 2-4% target. Prices rose by an average of 6.2% during the third quarter alone.
Malacañang has issued several measures to boost food supply in order to bring down the cost of staple food items like rice, fish, meat and vegetables, as these saw the biggest price spikes in the last few weeks.
“Both the national government and the BSP have squarely addressed the problem of high inflation,” Presidential spokesperson Salvador S. Panelo also said in a separate statement on Friday.
The BSP expects full-year inflation to average 5.2%, with the latest string of interest rate adjustments meant to usher inflation back to the target band next year. Latest estimates show that 2019 inflation could clock in at 4.3%, still above target.
Ms. Tuaño-Amador said that higher interest rates would also help the peso, which has been taking a beating in recent weeks.
“While we believe that country’s fundamentals remain solid and healthy, a robust monetary response can help reduce exchange rate volatility amid increasing uncertainty in global economic front particularly in so far as escalation of trade tensions are playing in the market,” the BSP official said, noting that future policy responses will remain “data-dependent.”
Monetary Board Member Felipe M. Medalla said on Tuesday that the central bank “may take a pause” from further rate hikes should inflation momentum show signs of easing. He added that the passage of the rice tariffication law — which would remove import quotas and allow private firms to import the crop as needed — would ensure that inflation will return to target by 2019.
Economic managers have also recommended the suspension of the fresh P2 per liter excise tax on fuel as world crude prices hover at the $80 per barrel level during the past few weeks.
A separate report from the BSP also showed that banks kept their credit criteria unchanged during the third quarter, although more lenders said they grew stricter for both retail and corporate borrowers.
This comes at a time of rising interest rates following the string of rate hikes from the BSP.
Loan officers of the country’s big and mid-sized banks said they did not change their standards in assessing loan applications, according to results of the Senior Loan Officers’ Survey conducted by the BSP.
The central bank uses the quarterly survey to understand the lending decisions made by banks and monitor bank credit. A total of 46 from 66 universal, commercial, thrift and foreign banks responded to the poll.
Some 76.7% of lenders said they used the same set of standards for granting loans to businesses. Under the diffusion index (DI) approach, however, more banks said they went stricter during the period as they expect tighter financial system regulations.
As a result, some banks said they became more demanding in terms of collateral requirements and loan covenants, and also used interest rate floors.
Around 75% also said they kept standards steady for consumer credit lines, but the DI approach showed a net tightening particularly for auto and salary-based loans due to reduced risk appetite, tighter liquidity conditions and a “less favorable economic outlook,” the BSP said.
This is reflected via reduced credit line sizes, stricter collateral requirements and loan covenants, shorter loan maturities and increased use of interest rate floors.
Banks also said that there was a net increase in loan demand across all types of credit, which they expect to continue until the fourth quarter. More lenders also said they expect to tighten their loan standards compared to those who expect to loosen their metrics.