HEADLINE INFLATION this year could be lower than expected as risks remain tilted towards the downside amid the ongoing pandemic, a senior central bank official said.

“We see chances that inflation will be lower than what we had projected to be slightly higher than the chance that the inflation will be higher than the projected levels,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco G. Dakila, Jr. said in an online forum on Tuesday.

Earlier this month, the BSP Monetary Board revised its average inflation forecast for the year to 2.3% from 2.6% amid easing oil prices and the slower-than-expected inflation seen in August.

Meanwhile, the inflation forecasts for 2021 and 2022 were also lowered to 2.8% (from three percent) and three percent (from 3.1%), respectively.

In September, headline inflation stood at 2.3%, easing from the 2.4% in August but still faster than the 0.9% tallied in the same month a year ago. Year to date, inflation averaged 2.5%, within the 2-4% target of the BSP.

“We see inflation within target over the policy horizon but we will be at the lower point of the target band. We will be approaching the mid-point of the target band as we go longer into the policy horizon,” Mr. Dakila said, noting risks remain tilted to the downside due to the impact of the pandemic on global and domestic growth prospects.

“Our market determination [of the exchange rate] is very beneficial to us. It provides correct pricing of risks,” he said.

The peso has been hovering around the P48-per-dollar range in recent weeks. The local unit closed at P48.62 on Tuesday, depreciating by two centavos from the P48.60 finish seen on Monday, data from the Bankers Association of the Philippines showed.

The local unit is currently among the strongest currencies and this was partly on the back of the decline in imports, Mr. Dakila said.

“Looking at the year-to-date performances of selected currencies, the peso is second in strength to the euro. The euro has appreciated year to date by 5.2%, the peso by 4.7%, followed by the Taiwanese dollar at 4.5%, the yen by 2.8%, and Chinese yuan by 2.2%,” he said.

On the other hand, he noted that some currencies of neighboring countries, such as the Indonesian rupiah and the Thai baht, have depreciated by 11.3% and 4.8% year to date, respectively.

“Economic activity has fallen and because of that, the demand for foreign exchange has also fallen,” Mr. Dakila said.

“Going forward as we reopen our economy, then we can expect there will be recovery in the demand of foreign exchange,” he said, noting the gradual comeback of the infrastructure push of the government will also boost imports. — L.W.T. Noble

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