Philippines not experiencing reflation –BSP

The Philippines is not experiencing reflation as the recent uptick in inflation is transitory and driven by supply-side pressures, the Bangko Sentral ng Pilipinas (BSP) maintained on Monday.

"Reflation is the act of bringing inflation from very low levels back up to its long-term trend after a period of disinflation and economic downturn. This is not the case," BSP Governor Benjamin Diokno said in a virtual briefing.

Inflation accelerated for the fifth straight month to 4.7% in February

Diokno said the observed inflation uptick is expected to be temporary and is driven primarily due to supply issues on a range of agricultural products, coupled with increases in world oil prices.

Diokno noted, however, that the central bank continues to watch out for possible second-round effects from the ongoing supply shocks which are said to have a low probability on the back of the present capacity underutilization and underemployment in the economy.

"BSP and national government policy responses continue to focus on closing the output gap, given the substantial excess capacity in the economy and the underemployment rate in the labor market," he said.

Just last week, Diokno said inflation is expected to grow at 4.2% this year, faster than the government's target band of 2% to 4%.

As part of its mandate, the BSP maintains price stability conducive to a balanced and sustainable growth of the economy and employment. It also promotes and maintains the stability and convertibility of the peso.

The Monetary Board last week decided to keep policy rates at record lows -- the overnight reverse repurchase facility at 2.00%, overnight deposit at 1.5%, and overnight lending facility at 2.5%.

Policy rates were slashed by 200 basis points in 2020 -- 25 basis points in February; 50 basis points each in March, April, and June; and another 25 basis points in November.

Diokno also last week said it is still too early for the central bank to start its COVID-19 exit strategy, as the timing will largely depend on economic data. — DVM, GMA News