Government keeps 3-year inflation target at 2 to 4 %

MANILA, Philippines —  The government, through the Development Budget Coordination Committee (DBCC), has decided to retain the inflation target range at two to four percent to support sustained economic growth in the next three years.

In consultation with the Bangko Sentral ng Pilipinas (BSP), the Cabinet-level body decided to retain the current inflation target for 2024 up to 2026.

“This announcement on the medium-term inflation target is in line with the BSP’s commitment to transparency and accountability, as well as the forward-looking approach to monetary policy formulation to keep inflation expectations anchored to the inflation target,” the central bank said in a statement.

The government’s decision to retain the medium-term inflation target underpins the BSP’s resolute commitment to take all necessary action to bring inflation to a target-consistent path over the medium term.

According to the BSP, the target range remains an appropriate representation of the medium-term goal for price stability, given the current structure of the Philippine economy, recent economic developments and the overall macroeconomic outlook over the next few years.

“The current and projected inflation environment continues to support the steady growth of the economy.  At the same time, enactment of structural reforms is expected to help boost prospects for domestic economic activity, raise productivity, and help build a sustainable non-inflationary economic growth,” the BSP said.

Inflation averaged 6.2 percent from January to November, well above the BSP’s two to four percent target range. The growth in the prices of essential goods and services eased to a 20-month low of 4.1 percent in November from 4.9 percent in September.

“The latest BSP forecasts indicate a likely deceleration in inflation in 2024 and 2025, given limited demand-based inflation pressures amid improving supply conditions,” the BSP said.

However, the central bank emphasized that risks to the inflation outlook remain strongly tilted to the upside for both years, which requires close monitoring, as well as readiness for further action as needed.

To tame inflation that peaked at 8.7 percent last January and stabilize the peso that slumped to an all-time low of 59 to $1 in October last year, the BSP’s Monetary Board hiked key policy rates by 450 basis points since May last year.

“The prevailing higher-for-longer stance of monetary policy, together with the implementation of the non-monetary measures by the government, is intended to ensure the sustained return of inflation to the medium-term target and keep inflation expectations anchored.

Looking ahead, the BSP said it would remain vigilant and data-dependent in deciding on monetary policy in order to steer inflation to a target-consistent path, fostering price and financial stability in the country.

At the Ateneo Economics and Management Economics Alumni Homecoming, BSP Governor Eli Remolona Jr. said much of the credit for the decline in inflation is the fact that expectations have been well-anchored.

This means that the public expects inflation to move toward the two to four percent target range.

The BSP chief pointed out that second round effects have been manageable.

In a press conference last Wednesday, Remolona said the current inflation target range is supportive of economic growth.

“The way we set the target between two and four percent is because we think this is a kind of inflation rate that gives room to the relative price changes that are consistent with growth prospects,” Remolona said.