Inflation is expected to ease allowing interest rates to maintain low

inflation-expected-to-ease

Monetary authorities are expected to hold policy rates steady until the second quarter next year or beyond as inflation continued to slow down in November, even if it settled beyond the government’s forecast for the month.

The Bangko Sentral ng Pilipinas (BSP) expected the consumer price index to grow by 3.3 percent to 4.1 percent, but the Philippine Statistics Authority on Tuesday pegged inflation in November at 4.2 percent.

This put the average inflation from January to November at 4.5 percent, which the BSP said suggests that the full-year average might exceed the government’s projected range of 2 percent to 4 percent.

Also, the BSP said it stood ready to maintain its accommodative monetary policy stance to support the economy’s recovery while also guarding against any emerging risks to its price and stability objectives. The Monetary Board has scheduled a policy meeting on Dec. 16.

In a research note, Goldman Sachs observed that headline inflation was slowly returning to the BSP’s inflation target range band.

“[With] slow vaccination progress likely to weigh on activity through early next year, we expect the BSP to be patient in normalizing policy settings, keeping the policy rate on hold until late 2022,” the bank said.

Nicholas Mapa, ING’s senior economist in the Philippines, believes that the policy rate will change earlier, possibly during the second quarter next year.

“We expect the Philippines to post robust growth numbers over the next two quarters, which may be enough to convince [BSP] Governor [Benjamin] Diokno, to finally decide to adjust his current accommodative stance,” Mapa said.

At the House of Representatives, House ways and means panel chair and Albay Rep. Joey Salceda expressed hope that slowdown in inflation would continue until January as restrictions are eased and COVID-19 vaccinations are ramped up.

“Inflation is likely to slow down further in December, but to a lesser degree than the deceleration this month, due to a spike in consumer demand. Supply chain management and logistics—and the rules that govern them—will be key to this development,” Salceda said.

“By loosening transport restrictions further, together with the aggressive national vaccination drives, inflation slowdown should continue to January 2022,” the lawmaker and economist added.

Salceda noted that at the regional level, the biggest inflation slowdowns were recorded in the Bicol region and the Cagayan Valley. In his home region in Bicol, inflation went down to 5.1 percent from 6.6 percent.

“The threats to agriculture and food supply, however, will be key factors in overall prices next year. If fertilizer and corn prices continue to increase next year, expect meat inflation and overall food prices to remain elevated,” he said, while expressing support for a budget increase for the Department of Agriculture’s Corn Development Program, and a fertilizer subsidy for small farmers.

Source: https://business.inquirer.net/335946/easing-inflation-seen-to-keep-interest-rates-low

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