Rice tariffication to temper inflation

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rice grains
Farmers dried rice grains along the road in Pulilan, Bulacan Province on Monday, April 23. Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said introducing rice tariffs by the third quarter could pull inflation lower. -- PHILIPPINE STAR/KRIS-JOHN ROSALES

By Melissa Luz T. Lopez
Senior Reporter

REPLACING import quotas on rice with tariffs would stand as a significant counterweight to rising prices, a senior central bank official said, noting that its timely passage would temper overall inflation.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said introducing rice tariffs by the third quarter could pull inflation lower.

“If Congress and the Senate are able to pass the rice tariffication bill to be implemented in the third quarter of the year, we expect some reduction by at least 0.4 percentage points (ppt) for 2018 and next year around 0.6%,” Mr. Guinigundo told reporters last week.

The central bank expects inflation to average 4.6% for 2018. Changes in the rice imports regime are expected to mitigate price pressures, although its impact would not be enough to bring the full-year print back to the 2-4% target range.

Prices of widely used goods hit a fresh peak in April as headline inflation came in at 4.5%, accelerating from March’s 4.3% and 3.2% a year ago. This pushed the year-to-date average to 4.1%, above the government’s 2-4% target range for 2018.

Delays in the passage of the law would mean a softer impact on inflation, with Mr. Guinigundo saying that rice tariffs would ease the overall pace by 0.2% if implemented by the fourth quarter.

Philippine authorities can limit the volume of rice imports every year via the quantitative restrictions (QR), which is a preferential trade deal secured by the Philippines since 1995. This cap is in place to prevent the influx of cheap rice from abroad to protect local farmers.

Once lifted, individuals and businesses can import additional volumes of the crop but will have to pay a 35% tariff.

Mr. Guinigundo has said that he expect new taxes to add “less than one percentage point” to overall inflation, which would be countered by an equal 1ppt reduction expected easing in the price of rice once the QR is lifted.

Economic managers of President Rodrigo R. Duterte have thrown support for the lifting of the QR as it would have “beneficial” effects to inflation, with tariffs collected by the government expected to support mass irrigation, warehousing, and rice research.

Congress is yet to approve a bill on this matter.

The BSP raised its key rates last week, marking its first tightening move in nearly four years at a time of five-year highs for inflation and robust economic growth.

The Monetary Board raised its borrowing costs by 25 basis points during their third review for the year. Rates now stand at 3.75% for the overnight lending rate, 3.25% for the overnight reverse repurchase rate, and 2.75% for the overnight deposit rate.