BSP says January inflation of 4.4% allows space for policy review

The Bangko Sentral ng Pilipinas (BSP) now has more space to review monetary policy, as inflation further slowed down in January.

“We are pleased to see inflation sustaining its deceleration on an annual basis in January 2019,” BSP Deputy Governor Diwa Guinigundo said in a text message to reporters Tuesday.

Inflation settled at 4.4 percent last month, compared with 5.1 percent in December and 4.0 percent in January 2018.

"This clearly validates the lack of persistence of supply price pressures experienced for the most part of 2018 when oil prices surged by 60 percent with similarly sharp upturns in the prices of rice, meat, fish and vegetables,” Guinigundo said.

“Demand pressures are clearly receding given the sustained moderation in core inflation. The government’s non-monetary measures to ensure ample supply of key food commodities turned the tide against food price upsurge,” he said.

The policy-setting Monetary Board (MB) now has space to review current policy, since interest rates were hiked by a cumulative 175 basis points last year due to a worrisome inflation.

“This latest positive outcome in inflation management gives the BSP more space to review its current monetary policy. With modest demand pressures, monetary policy could be slightly on the brake. But the BSP needs the benefit of time and more observations,” Guinigundo noted.

“The BSP will be in a more strategic position to, one, ascertain the impact of the previous move to reduce reserve requirement ratio (RRR) and the subsequent tightening it had to implement in the face of potential second-round effects and disanchoring of inflation expectations and, two, chart the future path of monetary policy,” he added.

The board is having a meeting Thursday, February 7, to discuss whether or not current conditions warrant policy change.

The overnight borrowing rate is currently at 4.75 percent, the overnight lending rate at 5.25 percent, and the overnight deposit rate at 4.25 percent.

In the face of current macroeconomic developments that might induce inflationary pressures, the central bank is on its toes to make the necessary policy adjustments.

“The BSP is in an urgent mode of further validating its current forecasts of 3.2 percent for 2019 and 3.0 percent for 2020 in the larger context of current and expected liquidity and credit conditions, prospects of economic growth and the impending slowdown in the global economy. It is ready to change course when warranted,” said Guinigundo.

First Metro Investments Corp. (FMIC) last year said the BSP is likely to cut the RRR by at least 2 percentage points in the first half of 2019, followed by a cut in policy rates in the second semester.

The Bank of the Philippine Islands (BPI) also said last November it expected the central bank to cut the RRR by 2 percentage points this year. —VDS, GMA News