CONFIRMATION of elevated inflation in September, especially one that pushes past 5 percent, should help convince the Bangko Sentral ng Pilipinas (BSP) finally to tighten the grip on monetary policy, the Manila unit of the Dutch financial services giant ING Group said.
Otherwise, Joey Cuyegkeng, ING Bank director and senior economist in Manila, said an inflation print lower than 5 percent in September was unlikely to compel the monetary authorities to make appropriate changes in the monetary settings and convince them instead to pause a while longer until more compelling developments unfold.
In a recent commentary, Cuyegkeng said the inflation report in September should help resolve the divided monetary policy outlook in the final three months of the year.
“A September inflation that remains elevated or breaches 5 percent would likely see a shift toward a consensus view of tightening at the October 23 meeting,” Cuyegkeng said.
“However, softer headline inflation for September may bring about a downward revision of 2015 inflation forecast of 3.8 percent to 3.9 percent. This would argue for a pause,” the economist added.
At the news conference held in the wake of the Philippine economic briefing on Tuesday, BSP Governnor Armando M. Tetangco Jr. said inflation could shoot up or climb down as the year draws to close and food-related prices fluctuate more than usual toward the end of the year.
But while notable price fluctuations are expected from October to December, Tetangco quickly added the average inflation this year should still be within the government’s target.
Cuyegkeng said while some modest easing was seen in the price of heavily weighted food items compared to prices a month earlier, such prices should remain elevated viewed against year-ago levels.
“Depending on the comfort level of the BSP and indications of measures to address supply bottlenecks, further policy-rate hikes could still be in the horizon,” Cuyegkeng said.
The central bank forecasts inflation averaging 4.4 percent this year, or still within the official target of 3 percent to 5 percent. For next year, the central bank sees inflation averaging 3.9 percent. This is, likewise, still within the government’s target of 2 percent to 4 percent for the year.
The BSP will be holding its next policy meeting on October 23. This is its penultimate rate-setting meeting for the year.
The central bank has implemented several rounds of tightening in earlier months to moderate rising inflation expectations for 2015.
The measures taken include increases in the banks’ deposit reserve ratio, the special deposits account interest rate adjustments and higher overnight policy rates.