Gov’t maintains 2023-2024 inflation ceiling at 2-4%; same target for 2025-2026

The economic managers of the Marcos administration have maintained the inflation target band of 2.0% to 4.0% for the next two years and set the same ceiling for another two years thereafter.

The Cabinet-level economic cluster Development Budget Coordination Committee (DBCC), during its meeting on December 5, decided to retain the current inflation target for 2023 to 2024 and set the same goal for 2025 to 2026, the Bangko Sentral ng Pilipinas (BSP) said in a statement on Friday.

The DBCC, known as the economic managers, is composed of the secretaries of Finance, National Economic and Development Authority, Budget and Management, and the governor of the BSP.

“This announcement of the medium-term inflation target is in line with the BSP’s commitment to transparency and accountability as well as the forward-looking approach in the conduct of monetary policy,” the central bank said.

“The inflation target range of 3.0% ± 1.0 percentage point (2-4%) continues to be an appropriate quantitative representation of the medium-term goal of price stability that is optimal for the Philippines given the current structure of the economy and outlook for macroeconomic conditions over the next few years,” the BSP said.

For this year, the country’s year-to-date inflation averaged 5.8% - surpassing the government’s target range of 2% to 4% - after hitting its highest print in 14 years at 8.0% in November.

The DBCC is, likewise, expecting inflation to average 5.8% this year, which could be met as long as the print for December does not exceed 8.5%.

Nonetheless, the BSP said the Philippine economy is expected to sustain its growth momentum going forward, underpinned by easing mobility restrictions, increased investments, as well as the resumption of business and tourism-related activities.

Thus, the central bank said that “domestic demand is seen to remain firm amid the monetary policy tightening implemented by the BSP to safeguard price stability.”

“The policy interest rate increases will also support the medium-term growth outlook as price stability promotes efficient allocation of resources and preserves the purchasing power of households,” the BSP said.

On Thursday, the central bank decided to tighten rates by 50 basis points effective Friday, December 16 — the overnight reverse repurchase to 5.5%, the overnight deposit facility to 5.0%, and the overnight lending facility to 6.0%.

Monetary policy or interest rates are among the tools used by central banks to stabilize inflation through controlling money supply by raising borrowing costs.

Higher borrowing costs could make consumers and businesses spend less, therefore reducing economic activity or lowering demand and eventually lowering prices.

“The series of policy interest rate adjustments by the BSP are intended to address the risks to the inflation outlook and anchor inflation expectations over the policy horizon as the economy continues its recovery from the COVID-19 pandemic,” the central bank said.

The BSP added that global oil and food prices are expected to moderate over the policy horizon, thereby easing the pressures on prices of domestic goods.

However, it said that domestic agricultural production continues to face challenges, particularly from weather disturbances, animal diseases, and global supply constraints.

“For this reason, the BSP continues to support the government’s implementation of timely non-monetary measures to address supply-side price pressures,” the central bank said.

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

Moving forward, the BSP said it will continue to closely monitor price developments and implement timely monetary policy action consistent with its mandate to maintain price and financial stability, conducive to sustainable economic growth. — DVM, GMA Integrated News