Monetary authorities are likely to slightly adjust upward their inflation forecasts amid the continued rise in the pump prices of petroleum products, according to the Bangko Sentral ng Pilipinas (BSP).

During a briefing by the Development Budget Coordination Committee (DBCC) at the Senate, BSP Deputy Governor Francisco Dakila Jr. said the central bank would present a revised inflation outlook to the Monetary Board in its rate-setting meeting scheduled on Aug. 17.

'Although this is not yet finalized, there might be a slight upward revision in the inflation outlook because of the developments, again external developments, mostly in oil prices,' Dakila said.

Dakila said core inflation, the measure of inflation over which monetary policy has a greater influence, was still much higher than headline inflation numbers.

Headline inflation averaged 5.8 percent during the seven-month period, still higher than the BSP's two to four percent target range, despite easing to 4.7 percent in July from 5.4 percent in June. It peaked at a 14-year high of 8.7 percent in January.

On the other hand, core inflation, which excludes the volatile food and energy prices, averaged higher at 7.6 percent from January to July despite easing to 6.7 percent from 7.4 percent.

'Core inflation is still much higher compared to the headline inflation numbers,' Dakila said.

Based on its last assessment in June 22, Dakila said the Monetary Board lowered its inflation forecast to 5.4 percent from 5.5 percent for 2023 and to 2.9 percent from 2.8 percent for 2024.

'We are careful in insuring that inflation expectations remain anchored to the inflation target. So, we want to guard against any dis-anchoring of inflation expectations,' Dakila said.

After a series of rate hikes in the past few weeks, the year-to-date net increase in the pump prices of petroleum products is about P11.50 per liter for gasoline, P7.10 for diesel and P2.60 for kerosene.

Current prices of gasoline have reached around P69 to P72 per liter, while those of regular diesel range from P64 to P67 per liter and kerosene at around P75 per liter.

The BSP is set to hold a rate-setting meeting today and is widely expected to extend the prudent pause by keeping interest rates steady.

Due to the inflation downtrend and stable peso, the BSP has extended its prudent pause in June after raising key policy rates by a cumulative 425 basis points since May last year.

According to Dakila, the impact of the rate hikes delivered by the BSP is minimal as the reduction on gross domestic product (GDP) growth is only one basis point for every 25-basis-point increase in interest rates.

On Tuesday, BSP Governor Eli Remolona Jr. said the current real interest rate of 3.25 percent, assuming an inflation rate of three percent next year and the current benchmark rate of 6.25 percent, is still quite low.

'Our estimated rate for the long run for an economy growing as fast as ours is 6.8 percent,' Remolona told members of the Senate committee on finance, in reply to a query from Sen. Imee Marcos.

Assuming an inflation forecast of three percent for 2024, a BSP policy rate of 6.8 percent will translate to a real interest rate of 3.8 percent and will not affect economic growth.

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