Philippine economy

Inflation to rise until Q3 of 2017 – BSP

Chris Schnabel
Inflation to rise until Q3 of 2017 – BSP
Despite global risks, iinflation remains manageable, and will fall within the target range by yearend, says outgoing BSP chief Amando Tetangco Jr

MANILA, Philippines – Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr said on Tuesday, March 28, inflation for 2017 looks set to rise throughout the year before eventually leveling out and falling within the target range by the year’s end.

“Moving forward, we see average inflation to be within the target range of 2-4% for 2017 and 2018. A closer scrutiny of monthly inflation path will show that inflation imprints will be rising until sometime in the 3rd quarter of 2017,” Tetangco said during the 2017 Economic Forum held by the Management Association  of the Philippines.

“At that point, the monthly rates are expected to be very close  to the upper band of the range. Even so, our forecast path suggests that monthly inflation will slow down thereafter resulting in full year averages to fall within target for the next two years,” he said.

While 2016 saw inflation fall below the target, prices suddenly went up at the start of 2017, with February’s inflation levels hitting a two-year high.

The central bank attributed this to a number of global factors, such as rising oil prices and the fall of the peso against the US dollar, as well as rising power rates and poor harvests domestically.

While an OPEC agreement to cut oil supply early this year caused oil prices to rebound, a subsequent uptick in supply – driven in part by the US Shale industry – raised questions about the sustainability of the oil price rally, Tetangco pointed out.

“Keeping a close eye on these developments is crucial because they have a direct implication on business costs and consumer sentiment,” he said.

Consumers now hold a slightly less favorable, although still positive, outlook for the first half of 2017, based on the BSP’s latest consumer sentiment survey.

Closer to home, the recently concluded Malampaya shutdown also raised consumer power rates for March.

To add to this, the peso has been sliding since the start of the year, hitting a 10-year low against the dollar in early March. The long awaited US federal interest rate hike finally happened in mid-March.

Despite the rate hike and price surges in the past couple of months, the BSP still deems the inflation environment manageable and has not raised its own key interest rates.

“If we take a longer term view of [the peso movements] you will see that the peso has been broadly stable and retained its competitiveness over the medium term. Looking ahead, we expect the peso to continue to draw strength from the steady stream of OFW remittances and foreign exchange receipts from tourism and BPOS,” Tetangco said.

“The money supply remains ample and even with double digit [economic] growth rates we do not see overheating in credit conditions as credit continues to be channeled to key production sectors,” he said.

He concluded: “More importantly, the intermediation of response is expected to remain safe and efficient owing to our sound banking system. Key indicators continue to reflect solid asset growth and improving quality of loans while capitalization remains strong and above prescribed domestic and international standards.”

Sooner the better for new BSP governor

Tetangco also reiterated his decision to step down as BSP governor in July, having served the maximum allowed two terms despite an attempt by the Duterte administration to amend the BSP charter to allow him to stay on.

A shortlist of frontrunners to replace him has surfaced, ranging from BSP veterans like Deputy Governor Diwa Guinigundo to Antonio Moncupa Jr, the head of the ruling PDP-Laban party’s economic think tank and East West bank president.

Tetangco said that he had discussed the matter with Finance Secretary Carlos Dominguez, who is widely tipped to make the decision and said that “there is no decision yet as of this point.”

The current BSP head had previously expressed his preference for a BSP insider to succeed him to ensure continuity.

Regardless of the final choice, Tetangco said, “the name of the successor should be announced as soon as possible.” He noted that he himself was anointed as a successor 5 months before her predecessor stepped down. – 

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