The Department of Finance expects economic growth to pick up in the fourth quarter, boosted by stronger consumer expenditures amid low inflation rate and higher infrastructure spending.
Finance Undersecretary Gil Beltran said the continuing drop in inflation gave monetary authorities room to loosen liquidity, enabling a cut in the policy rate by another 25 basis points.
“This plus a strong fiscal position coupled with efficient implementation of the catch-up spending program will boost economic growth in the last quarter of the year,” Beltran, who is also the DOF’s chief economist, said.
GDP growth averaged only 5.6 percent in the first half with the late implementation of the 2019 government budget which affected infrastructure spending. Beltran said with the budget implementation now on track and inflation rate settling below 1 percent, growth would likely be faster in the final quarter of 2019.
Inflation in September slowed to a 40-month low of 0.9 percent from 1.7 percent in August, pulled down by the decline in the index of heavily-weighted food and non-alcoholic beverages, the Philippine Statistics Authority said Friday.
Data showed it was the first time that inflation settled below 1 percent since the 0.9 percent in May 2016. The September 2019 inflation was also slower than the peak of 6.7 percent registered in September 2018.
This brought inflation in the first nine months to an average of 2.8 percent, below the mid-point of the target range of 2 percent to 4 percent this year.
Beltran said that for the rest of the year, assuming a month-on-month price growth of 0.2 percent at most as in September, “monthly inflation will be likely still below 1 percent in October before making upward corrections in the final two months.”
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the September inflation was within the BSP’s forecast range of 0.6 percent to 1.4 percent for the month and was driven by the continued decline in rice prices and electricity rates which offset the higher prices of petroleum and selected food products.
He said the BSP continued to expect average inflation to firmly settle within the target range of 2 percent to 4 percent for 2019 to 2021.
He said the BSP would continue to closely watch the latest economic developments here and abroad to ensure that the monetary policy stance would remain consistent with the bank’s price stability objective while being supportive of economic growth.
ING Bank Manila senior economist Nicholas Mapa said inflation continued to head south as base effects hit home. He said mirroring last year’s inflation peak of 6.7 percent in September and October,
the September 2019 print dropped to 0.9 percent with the index-heavy food basket weighing mightily on headline inflation.
“Last year’s inflation spike was supply slide oriented and with bottlenecks addressed, inflation has decelerated quickly all the more after BSP’s 175-bps rate hike barrage,” Mapa said.
“Inflation will likely revert [to] target once base effects fade. Price pressures appear to be benign as food prices are expected to be more stable given new legislation and government’s openness to importing food stuffs,” Mapa said.
The continued deceleration in inflation prompted the Bangko Sentral to cut the benchmark interest rates on Sept. 26 by 25 basis points to 4 percent. The following day, the board also cut the reserve requirement ratio of banks from 16 percent to 15 percent to unleash more liquidity into the financial system.