BSP to remain data-dependent

The Bangko Sentral ng Pilipinas (BSP) said on Thursday it would remain data dependent on its monetary policy as the 4.6 percent May inflation was within its forecast for the month and lower than what market expected.

In an interview, BSP deputy governor for monetary stability sector Diwa Guinigundo maintained the government’s prudent approach and would not be swayed by calls for tightened monetary policies. Guinigundo said the BSP has become more accurate in predicting last month’s inflation figure.

“(It) looks like most of the analysts who originated the call for BSP to be more aggressive in tightening monetary policy erred on the high side of the actual May inflation of 4.6 percent. Based on its month-on-month movement, it appears that the momentum of inflation has further lost steam, sustaining the weaker pace since the beginning of the year,” Guinigundo said.

However, prices accelerated faster last month, with inflation higher than the 4.5 percent recorded in April, with several sectors, particularly the opposition, pointing to the controversial Tax Reform for Acceleration and Inclusion or TRAIN Law.

The Department of Finance (DOF) spokesperson Atty. Paola Alvarez explained that several factors are adding inflationary pressures to prices of commodities, including the fluctuating oil prices in the world market, the weakening peso, inadequate rice supply, among others.

She maintained that the TRAIN law’s actual contribution to inflation was only 0.4 percent, but expressed confidence that prices would soon stabilize because oil prices are going down in the global market and the government’s plan, through the Department of Energy, to import oil from non-OPEC members to stockpile on petroleum products.

Alvarez added that rice supplies are expected to increase once the government import of the grain arrives.

Meanwhile, Guinigundo said there is not enough reason for the BSP to “pay attention” to the solicited advise of so-called “financial forecasters” because they erred in their prediction.

He went on to say, “We should rather continue to be data-dependent and be guided by the rolling forecasts of a longer horizon that would capture the essence of the supply side drivers and the volatile oil and other commodity markets.”

Among the financial analysts that made the biggest wrong prediction was Bloomberg, which forecasted May inflation to range between 4.9 and 5.3 percent.

The BSP official added that even before analysts were giving the government unsolicited advice on how to manage inflation, the central bank was already aware of the mitigating factors that are affecting high inflation — rising fuel prices, peso depreciation, and others.

“This thrust is pivotal in addressing the medium to long-term need to increase our productive capacity and sustain the momentum of economic growth. The BSP will, therefore, continue to keep its ears on the ground for any sign of additional price pressures or whether these could build up into secondary effects concerning demand for higher wages and increase in transport fare and promptly undertake appropriate measures,” the official added.

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