By Melissa Luz T. Lopez
Senior Reporter
INFLATION is expected to fall 4% this year with risks to prices seen balancing, the Bangko Sentral ng Pilipinas (BSP) said, after the indicator spiked in 2018.
The Monetary Board (MB) opted to pause its tightening cycle in December as it projected a tamer inflation outlook over the next two years, coming from jolting price increases observed during the second half of 2018.
Policy makers voted to keep benchmark rates steady at 4.25-5.25% during their Dec. 13 review, breaking a five-meeting streak of rate increases cumulatively worth 175 basis points (bp). This brought the key rate to 4.75%, the highest in nearly a decade.
“[T]he MB observed that the risks to the inflation outlook have become more evenly balanced for 2019 and lean towards the downside for 2020 amid a more uncertain global economic environment, which could further mitigate upward pressures from commodity prices in the coming months,” according to the highlights of the central bank’s policy meeting.
Back then, the central bank saw inflation slide sharply in November to 6%, coming from a nine-year high of 6.7% in September and October.
“The latest inflation outturn confirms the BSP’s assessment that price pressures have started to ease in Q4 2018,” the policy makers added.
Data released by the Philippine Statistics Authority last week showed a sustained decline to 5.1% in December, which kept the 2018 average at 5.2%.
BSP Assistant Governor Francisco G. Dakila, Jr. said last month that the authorities are now “a lot more comfortable” that inflation will return to the 2-4% target band, even as early as late in the first quarter.
“The risks to future inflation are seen as evenly balanced for 2019. Meanwhile, downside risks to the outlook will dominate in 2020 largely due to downside risks to global growth,” the report added.
The BSP expects 2019 inflation to average 3.2%, while the 2020 figure is seen settling at 3%. A sharp decline in world crude prices, the P1 rollback in minimum jeepney fares, and the series of rate hikes from the central bank are seen tempering price adjustments moving forward.
Slower global economic growth dampened by a trade war between the United States and China is also expected to help tame inflation, despite upside risks drawn from higher electricity rates and a fresh round of sin tax increases this year.
Still, the central bank said it will take further policy action “as appropriate” to ensure stable prices.
Bank analysts have said that the BSP is now at the end of its tightening cycle as inflation is becoming less of a problem, with some even noting that there may be room to unwind by lowering bank reserves anew as well as possible rate cuts later this year.
The BSP will hold its first policy meeting for 2019 on Feb. 7.