INFLATION may have accelerated slightly in January, but the Bangko Sentral ng Pilipinas (BSP) will likely continue to tighten monetary policy this year, a local economist said.
In a recent economic bulletin, ING Bank Manila economist Nicholas Mapa said the inflation rate may have reached 2.9 percent in January, slightly higher than the 2.5 percent recorded in December.
Mapa said January saw sustained disruption to the supply chain as “runoff effects” of the recent storms and damage from the eruption of Taal Volcano will boost food prices.
“Transport prices will see a slight uptick in prices on the third tranche of the fuel excise tax was implemented although lower global crude oil prices muted most of the impact,” he said.
“Lastly, ‘reverse’ base effects from the low inflation reading in 2019 will also nudge the 2020 inflation path to bounce then settle at around 3 percent on average for 2020,” he added.
Despite the projected upward trajectory of the inflation rate, Mapa said the BSP will still likely cut rates this year and continue its easing stance from 2019.
The ING economist believes that BSP Governor Benjamin E. Diokno will prioritize supporting growth for this year, as he sees enough elbow room for the Monetary Board to cut interest rates further.
The government maintained its inflation target of 2 to 4 percent this year. “In light, however, of the recent development related to the 2019-nCoV, we do expect global growth to dissipate as China, one of the biggest cogs in the global market, is poised to show a marked slowdown.
A possible downward revision to China’s growth outlook in 2020 will undoubtedly dampen its demand for Philippine exports with China one of the top three trading partners for the Philippines,” Mapa said.
“Given the bleak outlook for global growth and dissipating threats to the inflation outlook, BSP will likely keep its foot on the easing pedal to help bolster the sagging growth momentum,” he added.
Mapa said he sees the first cut to the interest rates happening as early as this week’s meeting to “give the economy a shot in the arm to help navigate the more challenging global growth scenario.”
“Meanwhile, we do not expect the BSP to tinker with the reserve requirement (RR) ratio for now, given ample liquidity in the system and to only resume cutting RR when bank lending shows signs of improvement,” he added.
The BSP will hold its monetary policy meeting on February 6.