BSP: Monetary policy still ‘appropriate’
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Fri, 26 Apr 2019 16:23:58 +0000
THE Philippines’ monetary policy remains “appropriate” based on the latest developments in the first quarter of 2019, according to the Bangko Sentral ng Pilipinas (BSP).
“[O]ur prevailing monetary policy stance remains appropriate, given the confluence of easing inflation and firm growth dynamics,” Diokno said in his welcome remarks during the central bank’s press briefing for the First Quarter Inflation Report on Friday.
The BSP has decided to keep its monetary policy settings unchanged during the quarter based on its assessment of a more manageable inflation environment.
Diokno highlighted that headline inflation further decelerated to 3.8 percent in January to March from 5.9 percent in the previous quarter, mainly as a result of a significant drop in food inflation due to improved supply conditions.
He also said recent prevalent demand indicators continued to point to overall firm domestic growth prospects for the country.
“In fact, survey-based consumer and business sentiment showed improved outlook in first quarter of 2019,” Diokno added.
Results of the central bank’s latest Business Expectations Survey put the first quarter confidence index — computed as the percentage of companies that answered in the affirmative minus those who replied otherwise — at 35.2 percent, up from 27.2 percent three months earlier.
Meanwhile, the overall consumer confidence index for the first quarter also improved to -0.5 percent from -22.5 percent three months earlier.
“The BSP continues to gauge the impact of its monetary policy responses on domestic economic conditions to ensure that inflation remains on track toward the government’s target of 2 to 4 percent and that inflation expectations remain anchored,” Diokno said.
While the risks to the inflation outlook are assessed to be evenly balanced this year, he, however, said further risks could emerge from a prolonged El Niño and higher-than-expected increase in global oil and food prices.
According to the inflation report, a prolonged El Niño presents upside price pressures on food prices.
“The start of a weak El Niño condition could lead to droughts in the first half of 2019,” the report said.
Citing the latest assessment of the Philippine Atmospheric, Geophysical and Astronomical Services Administration, it noted that slightly warmer average temperature and significant reduction in rainfall could result in moderate to severe drought conditions over the forecast horizon.
“This could result in higher prices of key food items broadly similar to previous El Niño episodes,” the report warned.
On the other hand, it added that, despite averaging lower in first quarter, Dubai crude oil prices have been steadily rising since January 2019 due to tighter supply.
The report also pointed out that estimated futures prices of Dubai crude as of end-March, six of which are based on movements of Brent crude oil, showed a higher path for 2019–2022, compared to the previous quarter’s estimates.
That said, Diokno stressed that the central bank “will remain data-driven at all times in our policy decision-making and our actions will be determined by our inflation outlook.”
“The BSP remains focused on safeguarding and promoting price stability conducive to a balanced and sustainable economic growth,” he added.
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