by Jan Michael Carpo, Reporter
Despite predictions that inflation in the Philippines will start to decline beginning January next year, the Bangko Sentral ng Pilipinas (BSP) is still not excluding the possibility of any rate increases in the future as it continues to take a precautionary stance.
In a press statement, BSP Governor Felipe M. Medalla said that while the Monetary Board might continue raising rates, it would not make any “extreme forecasts” about future rises.
According to Medalla, inflation would reach its peak between 7.6 per cent and 8.4 per cent in December. This scenario takes into account externalities such as typhoons and similar other occurrences that could further raise inflation expectations in the country.
“The inevitability of the beast would prohibit us from ruling out rate increases. In actuality, predicting the next month is always accurate to within 0.4 [percent] of the actual value,” the governor of the central bank was quoted as saying.
Medalla claimed that the BSP is reluctant to lower the Reserve Requirement Ratio (RRR) in light of the rate increases. He claimed that doing this while interest rates are rising might result in a misunderstanding.
“Since all we need to do to cover the liquidity cost caused by the RRR cut is to borrow additional money, then we should really be able to do so. However, if the BSP were to stop increasing rates, the RRR might be reduced from its present level of 12 per cent to roughly 10 per cent. Symbolically, we can get 9.9 per cent,” he added.
The BSP chief stressed that in order to avoid confusing the market, it must wait until the country is no longer in a growing mode.
Expectations for inflation
Inflation is predicted to start falling in 2023 and to be closer to 3% than 4% in the third quarter of the following year. It is also anticipated that inflation will be less than 2 per cent by the end of 2023 or at least by the start of 2024.
The BSP chief also said that he anticipates that “the strong dollar period” would come to an end in 2023, which would help to lower inflation. This will be complemented by falling oil prices, which are also cited as a major factor in the statewide increase in commodity prices.
Citing a recent Monetary Board decision, he said that the overnight reverse repurchase facility for the BSP would increase by 50 basis points to 5.5 per cent on December 16, 2022.
As a result, the interest rates for the loan facilities and overnight deposit facilities will be established at 5% and 6%, respectively.
However, as previously forecasted, inflation did not peak in November 2022 but would eventually do so in December 2022.
Core inflation increased to 6.5 per cent in November, bringing the overall inflation rate to 8 per cent.
Medalla added that typhoons, which had an impact on the cost of vegetables, fish, and seafood, among other things, were mostly to blame for the higher inflation rates in November.