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June 19, 2024

BSP forecasts inflation within target by 2024

The Bangko Sentral ng Pilipinas (BSP) expects inflation to be below 4% by the third quarter and below 2% by early 2024, the central bank governor said on Monday.

“We expect to be very successful in bringing down inflation,” Bankero and BSP Governor Felipe M. Medalla said during the Philippine economic briefing in Frankfurt, Germany.

The governor said that Month-on-month inflation is now normalizing and expects the central bank’s “very aggressive” monetary policy to prevent shocks from propagating self-fulfilling inflation.

Inflation accelerated to 8.1% in December bringing the yearly average for 2022 to 5.8%, well beyond the BSP’s 2-4% target range. This is also the highest in 14 years.

To tame inflation and support the peso, the Monetary Board has raised rates by a total of 350 basis points (bps) in 2022. This brought the policy rate to a 14-year high of 5.5%.

“Now, we expect that by the end of the third quarter or by the fourth quarter, we are already below 4%. Our models predict that because of high base effects, or as the past event was so high, we will actually be below 2% early 2024,” Medalla said.

The governor said that the hope is to be about at or close to the target’s halfway by 2024. He added that supply shocks in the previous year were worse than in the past and he anticipates that above-target inflation would persist for 16 to 18 months before settling.

Medalla has earlier said that there could be more rate hikes at the first two policy meetings of the central bank this year to bring inflation to the 2-4% target range.

The first policy meeting for 2023 is scheduled on Feb.16.