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BSP Sees Inflation Rise Over the Next 3 Years

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Key Points

  • Prices of the country’s basic goods and services are expected to rise slightly faster over the next three years as domestic and international markets continue to pick up the pieces from the devastating effects of the COVID-19 pandemic.
  • The Monetary Board also believed that the 2021 inflation rate from its previous baseline assumption of 2.6 percent would increase to 3 percent. Meanwhile, from the board’s previous baseline projection of 3 percent, the consumer price index for 2022 was adjusted upward to 3.1 percent.
  • The deputy chief of the central bank noted that the local and foreign fuel and oil prices—key drivers of inflation—have risen in the six weeks between the June and August interest rate setting meetings of the Monetary Board.
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Manila • Prices of the country’s basic goods and services are expected to rise slightly faster over the next three years as domestic and international markets continue to pick up the pieces from the devastating effects of the COVID-19 pandemic.

Thus said the Bangko Sentral ng Pilipinas (BSP) Monetary Board, which agreed to modify baseline inflation forecasts for the remainder of 2020 until 2022 at their latest interest rate-setting meeting.

According to BSP Deputy Governor Francisco Dakila Jr., the latest data showed that the economy would likely see an increase in inflation by an average of 2.6 percent by the end of this year, rather than the 2.3 percent average forecasted during the June board meeting of the policy-making body.

The Monetary Board also believed that the 2021 inflation rate from its previous baseline assumption of 2.6 percent would increase to 3 percent. Meanwhile, from the board’s previous baseline projection of 3 percent, the consumer price index for 2022 was adjusted upward to 3.1 percent.

“If we look at the major factors that led to the revision in the forecast, we note that the inflation in June and in July was higher than our initial baseline projection, although these inflation outturns were well within our forecast range,” Dakila said.

The deputy chief of the central bank noted that the local and foreign fuel and oil prices—key drivers of inflation—have risen in the six weeks between the June and August interest rate setting meetings of the Monetary Board.

“These are the major factors that led to the revision in the forecast,” he said. “On the other hand, these factors were partly offset by the sharper than expected contraction in growth, especially during the second quarter, and the continued appreciation of the peso.”

Overall, however, the central bank said the country’s price environment going forward would be “benign.”

Last week, the central bank kept its key interest rates unchanged in line with market expectations, saying that the economy needed more time to digest the P1.3 trillion of liquidity it has already poured into the financial system since the pandemic started.

The regulator has decided to keep the interest rate at 2.25 percent on its overnight reverse repurchase facility—in which banks base their own pricing of loans.

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