MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) expects inflation in September to settle between 0.2 and one percent on the back of cheaper rice and lower power rates.
BSP Governor Amando Tetangco Jr. said inflation this month would remain low as downward adjustments in power rates and the modest decline in rice prices could offset the effect of a weaker peso.
Inflation eased to a new record low of 0.6 percent in August from 0.8 percent in July, bringing the average inflation in the first eight months to 1.7 percent amid stable food prices and lower utility rates.
Tetangco said monetary authorities recognize the risks brought about by the impact of the prolonged and severe El Niño weather conditions in the country.
“However, the impact of a stronger and protracted El Niño on food prices and utility rates could provide a source of upside inflation in the months ahead,” he said.
He pointed out the BSP would continue to monitor evolving price trends to ensure price stability conducive to a balanced and sustainable economic growth.
The BSP has set an inflation target of two to four percent for this year and next year.
BSP Deputy Governor Diwa Guinigundo earlier said inflation forecast has been lowered further to 1.6 percent instead of the previous projection of 1.8 percent because of the continuing softening of oil prices as well as other food prices.
Guinigundo said the government has already undertaken a number of initiatives to address and mitigate the expected impact of El Niño on the agriculture sector.
Guinigundo said the BSP raised its inflation forecast to 2.6 percent instead of 2.5 percent for next year and to three percent instead of 2.6 percent for 2017 because of the El Niño dry weather conditions.
“We do expect that El Niño dry weather conditions will more serious in the sense that the forecast is stronger El Niño and prolonged until June 2016. Any additional risks from the dry weather conditions would significantly affect the balance of risks,” he added.
The BSP official also cited the global uncertainties brought about by the volatile global financial markets.
Last Sept. 23, the BSP’s Monetary Board kept policy rates unchanged for the eighth straight policy-setting meeting since October. The overnight borrowing rate is currently pegged at four percent and the overnight lending rate at six percent.