According to a JP Morgan economist, the Philippines will continue experiencing low inflation rates in 2016 because of the impact of El Niño and the weak prices of crude oil.
In a report dated October 6, 2015, Sin Ben Ong, chief Southeast Asian economist of JP Morgan, stated that the country will face modest inflation during the remaining months of 2015 and even during the following year. As a matter of fact, JP Morgan has already adjusted its earlier inflation forecast for 2016 down to 1.3% instead of 1.8% year-on-year.
“One of the concerns in the Philippines this year,” Ong explained “had been the impact of El Niño on domestic food prices, especially of rice and so far, it has been surprisingly benign.”
As the El Niño phenomenon persists in the country and its neighboring countries, it is expected that extreme weather will be experienced including high temperatures and droughts. This, in turn, will possibly have a negative effect on the prices of commodities.
Around the fourth quarter of 2016, Philippine inflation is expected to be 1.8% instead of 2.4% as originally foreseen which shoots down Bangko Sentral ng Pilipinas’ target range.
Ong said “Aside from inflation, the focus for the central bank will be on managing its introduction of the interest rate corridor in the second quarter 2016.”
BSP’s interest rate corridor system aims to set minimum and maximum rates for both long-term and short-term funds. That way, the rates can be adjusted depending on the economy’s required liquidity.
“In the interim, the BSP’s policy rate settings are expected to remain on hold in view of the still buoyant domestic demand conditions in the face of soft price pressures,” Ong added.
In September of this year, Philippine inflation went down to 0.4% instead of 0.6%, summing up the 9-month inflation rate with an average of 1.6%.