By Jun B. Vallecera | Editor in chief
Projected inflation at the far end of the policy horizon was seen moderating in 2018 to around 2.6 percent, versus forecast inflation averaging 3.1 percent next year.
This was drawn at the conclusion of the rate-setting meeting of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday, where the rate at which the BSP borrows from banks had been kept steady at 3 percent.
The same meeting also kept the rate at which the BSP lends to banks unchanged. The banks’ deposit reserve requirement has, likewise, been kept steady.
“The Monetary Board’s decision is based on its assessment that the inflation environment continues to be manageable. Latest forecasts indicate that average inflation is likely to settle near the lower edge of the 3-percent plus or minus 1-percentage-point range in 2016 and rise toward the midpoint of the target range in 2017 and 2018,” Deputy BSP Governor Nestor A. Espenilla Jr. said in a prepared statement.
BSP Governor Amando M. Tetangco Jr. has embarked on an official trip to Basel, Switzerland, where the board of governors of the Bank for International Settlements (BIS), also known as the central bank of all central banks, is headquartered and holding its annual meetings.
In explaining the moderation in the rate of change in prices over the policy horizon, Deputy BSP Governor Diwa C. Guinigundo said the forecast moderating inflation in 2018, when President-elect Rodrigo R. Duterte shall have made known in full the government’s monetary and fiscal programs, should have nothing to do with how the government under the erstwhile Davao City mayor is regarded by investors and consumers alike.
“Forecast inflation between now and the next 18 to 24 months down the line should prove benign and well within the forecast inflation for the period ranging from 2 percent to 4 percent,” he told financial reporters.
So-called M3 growth, which tracks the speed at which money generally available to businesses and households, expanded by 11.8 percent as of latest BSP survey and credit growth, which tracks the loan activities in the financial system and, therefore, a more or less reliable proxy for continued economic expansion, was last tracked at 12.7 percent.
“In other words, there is sufficient liquidity in the system to push the economy forward,” Guinigundo explained.
He also said the balance of risks attendant to the so-called Brexit, in which the United Kingdom opts out of the European Union (EU), favors those who want to remain under the ambit of the 19-nation bloc of countries.
“It looks like those opting to remain are more than those who want to exit” such that the likelihood of a fallout in the domestic foreign-exchange scenario looks muted, as well,” Guinigundo said.
“The impact of a domestic forex fallout [or a significantly weakened peso] is not significant,” he reiterated.
In any case, should those wanting to leave the EU prevail in the UK, the Philippines has “sufficient macroeconomic fundamentals to weather the economic fallout,” Guinigundo said.
The $285-billion Philippine economy also has foreign-exchange reserves “more than sufficient at $83.5 billion” to weather the resulting volatility.
The Philippines has a string of surpluses in the balance of payments, or BOP, and a similar surplus in its current account helping insulate the country from the ill effects of any safe haven migration, according to Guinigundo.