MANILA — An economist of Dutch financial giant ING Bank said the continued weakness of the Philippine peso could push the Bangko Sentral ng Pilipinas (BSP) into a hawkish posture amid its steady policy stance as inflation rises.
In a research note, ING Bank Manila senior economist Joey Cuyegkeng said the local currency, which has weakened by around 4.4 percent against the US dollar to date, contributed to the 4.3 percent inflation rate in March 2018, the highest in five years.
In the first quarter of the year, inflation averaged 3.8 percent which is still within the government’s 2.0 to 4.0 percent target range until 2019.
Cuyegkeng stressed that “we cannot brush aside the possibility of a significantly weaker peso.”
He cited the overall impact of inflation, which has been rising primarily due to higher taxes on tobacco and alcoholic drinks as well as the uptick in prices of the heavily-weighted food index.
Last March alone, the alcoholic beverages and tobacco index sustained its double-digit inflation rate at 18.6 percent, while the food and non-alcoholic beverages index stood at 5.9 percent. Other contributors were: restaurant and miscellaneous goods and services, 3.0 percent; housing, water, electricity, gas and other fuels at 2.9 percent; furnishing, household equipment and routine house maintenance at 2.7 percent; and health, 2.4 percent.
Cuyegkeng said the peso “weakened by 7.0 to 9.0 percent in 2013, 2015, and 2016 due to the shifting US monetary policy and heightened local and global risks.”
He added that a weak peso may eventually spur the central bank to turn hawkish. To date, the peso is trading at the 52-level against the US currency.
The research note added that the government’s rice importation plan, targeted to ensure enough buffer stocks, along with the tapering effect of tax-related price pressures “would moderate inflation over the policy horizon.”
On Thursday, BSP Governor Nestor A. Espenilla Jr. said monetary officials will closely monitor factors that are affecting domestic inflation rate. “The coming task of the MB (Monetary Board) is to carefully evaluate the appropriateness of a measured policy response to firmly anchor inflation expectations in line with our forecast that inflation target will continue to be met in 2018-19” he added. (PNA)
