The economy is not overheating and inflation will fall within the 2-to-4 percent target next year, central bank Governor Nestor Espenilla said Friday.
He said inflation will peak in August or September and average above four percent this year, but he expects it not to breach 6 percent.
“The economy is not overheating. What we are dealing with is the extra challenges on top of the immediate supply-side issues,” Espenilla said in an exclusive interview with ANC’s The Boss.
He said elevated inflation is the immediate challenge to the Bangko Sentral ng Pilipinas, and “We continue to closely monitor the situation so that we will be able to act in an expeditious manner.”
Espenilla said oil is the primary inflation driver while the turmoil in Turkey and the normalization of monetary policy in the US and other markets add an “element of uncertainty.”
Espenilla raised the overnight borrowing rate by one percentage point in three successive policy meetings since May, bringing it to 4 percent after keeping it unchanged for nearly four years.
He said it is inaccurate to compare the Philippines to Turkey, which is also grappling with rising consumer prices.
“I wouldn’t even say that inflation is spiraling out of control. Yes, it has spiked because of largely supply-side factors, but our expectation is it will come back to target soon enough,”Espenilla said.
“As recent events have shown, we have demonstrated the ability to respond to the change in circumstances by moving policy rates when necessary.”
Espenilla said the central bank will continue to be data-dependent when deciding on monetary policy. He said having access to data, including those that may not be available to the market, “imposes a discipline” on the decision-making process.
“We adhere to that carefully, of being guided by the numbers, not by sentiment, not by public clamor or emotion. We have to calculate and look at those numbers,” he said.