THE Bangko Sentral ng Pilipinas (BSP) has given assurances that the growth of consumer prices will be tamer this year, but warned of potential uncertainties due to the evolving nature of the pandemic around the world.
In its open letter to Malacañang, the BSP said it sees inflation returning to the national government’s inflation target range of 2 to 4 percent for 2022 and 2023 on the back of continued and effective implementation of direct non-monetary interventions.
The BSP is mandated by law to write an open letter to the president for each year that they fail to keep inflation within the annual range. In 2021, inflation averaged 4.5 percent—breaching the initial range of 2 to 4 percent and the adjusted assumption of 4.4 percent.
The country’s monetary authority, however, warned that this outlook is still subject to “considerable level of uncertainty” given the developments relating to the pandemic.
The BSP said Covid-19 developments could affect domestic and external economic conditions for the year.
“Nevertheless, we would like to assure the President and the Filipino people that the BSP is closely monitoring developments and challenges brought about by the pandemic to ensure that the monetary policy stance remains consistent with its price and financial stability objectives,” the BSP said in its letter.
Inflation will also be hinged on policy reforms to alleviate supply constraints, particularly as risks to the inflation outlook appear to be slightly on the upside for 2022.
“These risks are mostly associated with a prolonged shortage in domestic pork supply, along with higher global commodity prices due to improving global demand amid lingering supply-chain bottlenecks,” the BSP said.
“Meanwhile, downside risks to the inflation outlook continue to emanate from the spread of new Covid-19 variants, which could delay the further easing of remaining containment measures as well as dampen the outlook for global and domestic economic growth,” it added.
Alert sounded
Meanwhile, amid a looming rate hike decision by the US Federal Reserve, an economist-lawmaker on Tuesday urged the country’s economic managers to ensure that the prices of basic commodities remain low.
This, House Committee on Ways and Means Chairman Joey Sarte Salceda said, will ensure that the Philippines will not be forced to prematurely retreat from its low-interest monetary policy.
“We should already take for granted that the Fed will raise rates. Even if they don’t do so [on Wednesday], they will probably do it several times over 2022, most likely thrice or four times,” Salceda said in a statement.
“It threatens the recovery of countries like the Philippines, which are net beneficiaries of US capital. Our close economic partners, such as Japan, will also probably be affected,” Salceda said.
According to Salceda, the countervailing or balancing option for the Philippines is to keep policy rates low.
“I think that is the predisposition of [BSP] Governor [Benjamin] Diokno. But he and the Monetary Board will be forced to make adjustments if food prices spiral out of control this year,” he said.
“So, the best way to ensure that we have a wide range of options, and are not backed into a corner by the developments in the US, is that we keep food prices low. That means winning the fight against ASF, on meat. On fish, we have to boost domestic supply on top of the DA’s plans to import. We also have to mind the prices of fertilizers and other basic crop inputs,” Salceda added.
Vulnerable sector
Salceda also warned of consequences particularly in the garments sector, whose major export market is the United States.
“Consumer spending in the US tends to suffer as a result of an interest hike by the Fed. When that happens, garments will take the first hit among our export industries. Other sectors that may see slower growth are electronics and BPO, but probably to a lesser extent. The continued shift to digitalization may even balance out the effect of the rate hike completely,” Salceda said.
He cited estimates that some 600,000 Filipinos are employed in the garments export sector.
“I am quite worried because 49,000 workers in Albay lost their jobs due to the Global Financial Crisis in 2008. Thus in the Econ Stimulus Plan I proposed to PGMA [former president Gloria Macapagal-Arroyo] was an income replacement and temporary employment program which was to become TUPAD [Tulong Panghanapbuhay sa Ating Disadvantaged/Displaced Workers]. We may need to intensify this effort among affected or displaced workers in these sectors. I expect Albay to need some help, given our high concentration of small exporters,” Salceda added.
He said the Department of Trade and Industry should now discuss anticipatory measures as the garment sector is really the most vulnerable sector here.
“We could also see lower demand in handicrafts, toys, even fruits and vegetables, and seafood, which are our biggest exports among basic consumer items to the US,” Salceda warned.
He hopes that the Financial Stability Coordinating Committee could explain to the House economic recovery cluster its plans to mitigate the impact of the rate hike, particularly on the banking sector.
“History and empirical data shows that the stronger the banking system, the weaker the effects are of a US rate hike on a foreign economy like ours. So, keeping the banking sector strong is key,” Salceda said.