- Central bank prepared to take further policy action
- Risks to inflation outlook tilted to the upside
- Year-to-date average inflation outside central bank target
MANILA — The Philippine central bank said on Tuesday it was prepared to take further monetary policy action if needed to anchor consumer price expectations even as inflation eased for the first time in three months in October.
The consumer price index rose 4.9% in October, less than the 6.1% in September, 5.6% forecast in a Reuters poll, and the central bank’s 5.1% to 5.9% projection, due mainly to slower increases in prices for food including rice.
Rice price inflation slowed to 13.2% in October from 17.9% in September, helping cool consumer prices last month, but the downtrend failed to ease the central bank’s inflation worries with risks to its inflation outlook “skewed significantly to the upside.”
“The Monetary Board deems it necessary to keep monetary policy settings sufficiently tight until inflation expectations are better anchored and a sustained downtrend in inflation becomes evident,” the Bangko Sentral ng Pilipinas said in a statement.
“The BSP remains prepared to undertake further monetary policy action as necessary to prevent supply-side pressures on prices from leading to additional second-round effects and dislodging inflation expectations,” it said.
Year-to-date average inflation of 6.4% over January-October remained well outside the central bank’s 2% to 4% comfort range for the year.
Worried that inflation could spiral out of hand, the central bank delivered an off-cycle hike of 25 basis points on Oct. 26, and left the door open to another hike at its meeting on Nov. 16 if the inflation situation worsened.
But Michael Ricafort, an economist at Rizal Commercial Banking, said slower inflation in October, coupled with a strong peso and lower global crude oil prices, “would support a pause in local policy rates, or at least reduce the urgency for further rate hikes”.
By the time the central bank meets next week, it would have third-quarter annual economic growth date which, according to Finance Secretary Benjamin Diokno, would better second-quarter growth of 4.3%.
But the government also reported data on Tuesday which showed exports contracted 6.3% in September from a year earlier, while imports shrank 14.7%.
The finance secretary, a member of the central bank’s policymaking Monetary Board, said on Monday he would vote to keep the benchmark interest rate PHCBIR=ECI steady at 6.5%.
– Reporting by Neil Jerome Morales and Mikhail Flores; Writing by Karen Lema; Editing by Kanupriya Kapoor, Christopher Cushing and Christina Fincher