THE Bangko Sentral ng Pilipinas (BSP) expects inflation to fall further than earlier expected this year, its chief bared on Wednesday.
BSP Governor Benjamin Diokno said inflation is now expected to average at 2.5 percent, lower than the 2.6-percent forecast the Central Bank announced in their previous monetary-policy meeting. The BSP’s next meeting will be Thursday (September 26). For the first eight months of the year, inflation already averaged at 3 percent, with the latest inflation print hitting 1.7 percent.
The BSP’s forecast means inflation is expected to average below 2 percent in the last four months of the year. The government’s inflation target is at 2 percent to 4 percent on average for this year.
While growth looked bleak for the country when it hit 5.5 percent in the second quarter of the year, the BSP brought good news to the country’s economy in its last monetary-policy meting as it revised the inflation forecast downward.
For 2020, the projection was also scaled down to 2.9-percent, from the 3-percent forecast in June. For 2021, inflation is also expected to average at 2.9 percent.
The BSP is set to announce a new set of inflation forecasts for 2020 and 2021 at its upcoming policy meeting.
Economists are convinced that the BSP will hike their rates on Thursday as the lower inflation allows them to support the country’s ailing growth.
Earlier, ING Bank Manila Nicholas Mapa and Philippine National Bank (PNB) economist Jun Trinidad agreed that the Central Bank, under the leadership of Governor Benjamin Diokno, will ease its rates by another 25 basis points this week.
This will be potentially the third policy cut this year. “As the threat of a global slowdown builds at a time where domestic growth momentum appears to be moderating, BSP appears primed to unload another salvo of rate reductions to stave off a festering economic slowdown,” Mapa said.
In 2018, higher oil prices and tax reform pushed inflation to exceed the government’s target for the year and prompted local economic managers to implement measures to bring down inflation. For BSP, this included several rate hikes to cut the accelerating rise of prices.
“The cuts will go a long way to restore now-shackled growth momentum as capital formation has turned sluggish under the weight of the BSP and its 2018 rate barrage. With household spending recovering, hopefully the resuscitated investment momentum will be enough to offset still sluggish government spending which tries to hurdle last year’s impressive spending spree as government chases 6-percent growth,” Mapa said.