Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said he is not worried yet about an inflationary growth as the economy is trying to get off the ground on the back of a supply side-driven rising inflation.

 “Right now, inflation expectations are well-anchored but we continuously monitor (whether) there will be some developments on the demand side. If this inflation is followed by increased demand and the grant of higher wages — that’s a concern. Or (if this inflation) will affect transport costs. But there’s no such thing (at the moment),” said Diokno during his regular Thursday virtual press briefing.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno (MB file)

He reiterated that no monetary response is required since inflation will only be “slightly elevated” above the two-four percent government target. He remains confident that it will “taper off in the second half of the year” due to the temporary supply-side pressures from higher oil and selected food prices.

BSP director for economic research, Zeno Ronald R. Abenoja, said for now, only non-monetary measures could directly address the disruptions in the supply chain for specific commodities. These non-BSP actions will help continue to anchor inflation expectations for the first three quarters of 2021 when inflation is above four percent.

 “Inflation will breach or will remain elevated (for three quarters) but that doesn’t necessarily mean that there could be an immediate response from the BSP, especially if we see inflation going back to target and even to the mid-point of the target, so that’s part of the evaluation that we do,” said Abenoja. “We look at the drivers, causes and nature of the drivers, of the price dynamics, and look at the entire path.”

Monetary policy works with a lag and the BSP cannot influence inflation over the near term, added Abenjoja. It is the direct non-monetary measures that will be able to do that.

 “What could be the policy response if ever inflation outlook (or) inflation expectations warrant a response? I think the Monetary Board always consider the entire set of policy response to inflation dynamics. What will be more appropriate will be based on what is the situation at the time,” said Abenoja.

In the meantime, Diokno said they are closely monitoring the corporate sector’s recovery this year and in 2022, and its strength of recovery will be part of the BSPs  monetary, financial and economic policies.

 “The BSP supports the economy, including the corporate sector, by providing an environment wherein there is ample liquidity available for lending, and banks can intermediate funds effectively and efficiently,” said Diokno. But, he said the corporates’ stressed balance sheets will still impact on economic activity, especially sectors that have been badly affected by the lockdowns.

The economy is expected to bounce back from the 2020 recession to a growth of 6.5 percent to 7.5 percent this year.

Diokno said the start of vaccination on March 1 will boost consumer and business confidence but there remain potential downside risks. These include potential reversals should investors reassess the prospects for economic growth and policy support that could translate into more insolvencies among sectors hit hard by the pandemic; risk of a second wave of the pandemic which could lead the re-imposition of lockdown measures; and lingering risks of delays in securing adequate vaccine doses for a significant percentage of the population.

For now, inflation continue to be manageable as far as BSP is concerned. They could see a near-five percent level within the next three quarters but their assessment also show that inflation will go back below the midpoint of the two-four target range by the fourth quarter 2021 and first quarter 2022 due to negative base effects.

The January inflation was at 4.2 percent – the highest since February 2019. The BSP’s forecast for February inflation is 4.7 percent based on a forecast range of 4.3 to 5.1 percent.

For the full-year, the BSP’s forecast average is 3.4 percent inflation and a flat three percent for 2022.

Source: Manila Bulletin (