BSP eyes point target for inflation

THE BANGKO SENTRAL ng Pilipinas (BSP) said it is looking at shifting to a point target for inflation, from the current 2-4% target band, its top official said.

- By Luisa Maria Jacinta C. Jocson

“We're seriously thinking of just having a point, a target level,” BSP Governor Eli M. Remolona, Jr. told reporters in a press chat on Friday.

“A single number, yes. In the US, it’s just 2%. In many other central banks, it’s just one number,” he added.

In December, the Development Budget Coordination Committee, in consultation with the BSP, set the inflation target at 2-4% from this year until 2028.

A medium-term inflation target helps “strengthen the forward-looking approach to monetary policy formulation with the view of helping anchor inflation expectations to the target,” the central bank earlier said.

Mr. Remolona said the inflation target they are eyeing may be a bit lower than the 3% midpoint of its current target band.

“Maybe 2% is good enough. We don’t know yet. We’re crunching the numbers,” he added.

The target also cannot be too low, Mr. Remolona said, as this has implications on economic output.

“The reason it’s not zero is because in a growing economy, you have to allow relative prices to change. And when you allow relative prices to change, they tend to be sticky downwards.”

“Allowing them to change means some inflation. It constrains the economy if you have too low a target,” he added.

In the past, the central bank had relied on operating targets under a framework for monetary aggregates in its policy decisions, according to a study by the International Monetary Fund (IMF).

The BSP adopted a modified targeting approach in 1995 after inflation spiked to double-digit levels amid a rice supply shortage. This approach focused more on price stability rather than monetary aggregate ceilings.