BSP tools ready if economy needs another boost

The Bangko Sentral ng Pilipinas complex (right), seen from Manila Bay in Pasay City.

THE Bangko Sentral ng Pilipinas (BSP) reiterated its readiness to act promptly should the economy need another boost, following the government’s announcement that inflation has picked up in June.

In a statement to reporters, BSP governor Benjamin Diokno said although inflation accelerated in June, the outturn is “consistent with the BSP’s prevailing assessment” that inflation pressures remain limited due largely to the adverse impact of the Covid-19 pandemic on the domestic and global economic conditions.

Inflation in June hit 2.5 percent, the first uptick since the start of the year.

“The BSP remains committed to use of monetary instruments and regulatory relief measures when needed further in fulfillment of its mandate to promote non-inflationary and sustainable growth,” Diokno said.

“The BSP likewise reiterates its support for the health and fiscal programs already being rolled out by the national government to support the needs of Filipino households and firms amid the pandemic,” he added.

Also despite the uptick, the BSP believes that the inflation environment will remain for the rest of 2020 and up until 2021. They expect inflation to average at 2.3 percent for this year—lower than the actual six-month average of 2.5 percent. For next year, the BSP expects an inflation average of 2.6 percent.

ING Bank economist Nicholas Mapa also believes that inflation will continue to be muted in the coming months, but because of a different indicator: unemployment.

He said in an assessment report that price pressures will remain subdued as demand remains crippled by record-high unemployment.

“Despite the acceleration in June, price pressures remain subdued with the economy reeling from the ill effects of the three-month lockdown imposed in March. With unemployment skyrocketing to 17.7 percent in 2Q, demand for commodities remains weak,” he said.

He also believes that the BSP will refrain from cutting its policy rates in the next meeting and will resort to other additional liquidity enhancement measures should the economy need more stimulus.

Diokno said they expect the economy to recover via a U-shaped path: output is likely to contract further in the remaining quarters of 2020 before recovering in 2021 once the impact of government policy support measures gains traction.

Diokno also said their outlook for the global economy has further deteriorated with considerable uncertainty brought about by the magnitude and duration of containment measures across all economies.

Uptick expected–Palace

Malacañang on Tuesday said the slight increase in inflation rate last month is “expected” with the resumption of more businesses during the said period.

“So when the economy reopened…there was an increase in demand and probably there was a limited supply that is why there was slight increase in inflation,” Presidential spokesperson Harry Roque said in an online press briefing on Tuesday.

The Palace official, however, noted the increase is nothing to be alarmed about since it is still within the government target.

“Well, the 2 percent [inflation rate] is still very low. We expected this to increase because we came from a complete lockdown,” Roque noted.

The BSP earlier said inflation rate this year will average between 2 percent and 4 percent.

To recall, many business operations were disrupted in March after the government imposed community quarantines to contain the spread of Covid-19.

With only a few businesses allowed to operate and most people confined to their homes, there was a decline in the demand of many goods and services from March to May.

By June, the government opted to relax community quarantine in many parts of the country allowing more businesses to operate and people to go out of their homes.

Samuel P. Medenilla

Image credits: Arden Paolo Alberto | Dreamstime.com



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