BSP admits prices won’t ease as forecast, sets further interest rate hike
Despite earlier predictions that prices would ease by February, inflation is likely to set another 14-year high for the month that just ended, the central bank said Tuesday.
In a statement, the Bangko Sentral ng Pilipinas (BSP) said February inflation would likely settle between 8.5 percent and 9.3 percent, the high end of which would be more than the 8.7 percent recorded in January.
February inflation would be driven by higher prices for liquefied petroleum gas (LPG) and key food items such as pork, fish, eggs and sugar, the BSP said.
Lower prices for domestic petroleum, fruits and vegetables, chicken and beef, on the other hand, would ease inflation.
The BSP said it would continue to raise interest rates to keep inflation in check, and said it would continue to closely monitor price developments.
Over the weekend, BSP Governor Felipe Medalla said they were ready to act accordingly if inflation in February remained higher compared to a month ago.
In an interview at the sidelines of the 2023 annual reception for the banking community Friday night, Medalla said there would be no reason to raise the policy rate if inflation slowed down in February.
But he added: “We are still hawkish. If the February inflation is bad, we will act… but we are hawkish for a reason. It is the data,” Medalla said.
On Feb. 16, 2023, the BSP raised the benchmark policy interest rate by another 50 basis points to 6 percent to rein in inflation that blew past the target range last year and accelerated to a 14-year high of 8.7 percent in January 2023. Accordingly, the interest rates on the overnight deposit and lending facilities were set to 5.5 percent and 6.5 percent, respectively.
BSP data showed the last time the policy rate hit 6 percent was in August 2008 during the global financial crisis when BSP hiked it by 25 basis points from 5.75 percent.
In deciding to raise the policy interest rate anew, the Monetary Board noted that the latest baseline inflation forecast path has shifted higher relative to the previous assessment. Average inflation is projected to breach the upper end of the 2-4 percent target range at 6.1 percent in 2023, before returning to within target at 3.1 percent in 2024.
The forecasts were adjusted upwards following the higher-than-expected inflation in January as well as the continued stronger rebound in domestic demand and gross domestic product growth in the fourth quarter of 2022.
Both headline and core inflation measures have also continued to increase, indicating a further broadening of price pressures, particularly in services, he said.
Meanwhile, National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan said that increasing minimum wages while commodity prices were high could be “very harmful” to the local economy.
At a congressional hearing Tuesday, he warned that raising minimum wages by legislation while inflation was high would do “more harm” in the long term.
“If we want to bring this country to the league of our neighbors, the safest thing to do to increase wages is by way of expanding economic activities,” he said. “And that means a lot of investments that need to be made to complement labor.”
With high food prices continuing to burden the population, Balisacan said the government is addressing the “very low productivity” in agriculture by investing in the “right places,” such as improving irrigation and access to markets, as well as technology.
Balisacan was responding to House Deputy Minority Leader France Castro, who called for an increase in the purchasing power of the public as prices continued to surge.
The current minimum wages range from ₱533 to ₱570 per day in the National Capital Region, while workers outside the capital get ₱306 to ₱470.
Also on Tuesday, Speaker Martin Romualdez said the House of Representatives is working with the administration’s economic team on measures aimed at controlling inflation.
He made the statement in the course of a briefing given by members of the Development Budget Coordination Committee (DBCC) on the impact of inflation on national government programs, activities and projects.
“Of course, one of the pressing issues (facing the economy and the nation) is the inflation rate. This is a global phenomenon. But again, hearing from you (today) would be a very, very good thing for us to prioritize. Again, I reiterate the Congress’ willingness to work hand-in-hand, to be marching in lockstep with the executive in pursuing the solutions to the economic challenges that the country faces,” Romualdez said.
President Ferdinand Marcos Jr. has predicted that inflation would soon go down.
“That’s what I lose sleep over — how to bring down inflation,” the President said.
Meanwhile, Marikina Rep. Stella Luz Quimbo called for the immediate distribution of cash assistance, saying skyrocketing food prices could result in 2.58 million more poor Filipinos.
Quimbo, senior vice chair of the House appropriations committee, suggested that the projected P11.9 billion in additional value-added tax (VAT) collections as a result of higher prices in January be used to help Filipinos cope with the high inflation.
In a statement during the DBCC briefing in the House appropriations committee Tuesday, Quimbo cited an Asian Development Bank study which estimated that 10 percent food inflation rate pushes an additional 2.3 million into poverty.
“With an 11.2 percent food inflation rate that we are currently experiencing, we are adding 2.58 million to the number of poor Filipinos,” Quimbo said in a mix of English and Filipino.