BSP sees end of rice QRs helping ease inflation
THE GOVERNMENT must find a way to support local farmers to cushion the blow from the influx of cheap rice, the Bangko Sentral ng Pilipinas (BSP) said as it backed the lifting of rice import restrictions by July.
“The Monetary Board noted that the removal of quantitative restrictions on rice importation will have beneficial effects on inflation. Enhancing economic efficiencies in the rice supply chain would translate to rice affordability for consumers, including farmers,” read the highlights of the BSP’s latest policy review which was published yesterday.
The officials were referring to the quantitative restrictions (QR) on rice imports, a preferential trade deal secured by the Philippines since 1995 that seeks to guard local farmers from cheaper supply from abroad. The latest extension will lapse by end-June.
The Monetary Board kept interest rates unchanged during its March 23 meeting, with inflation seen to remain manageable over the coming year despite a faster climb in prices observed during the past few months.
The BSP’s decision came a week after a fresh 25-basis-point increase was announced by the Federal Reserve, a move widely expected by the markets.
Inflation has averaged 3.2% during the first three months of 2017, still within the central bank’s 2-4% target band even as price increases have been on an uptrend since November last year. Consumer prices rose by 3.4% in March, the fastest pace in over two years, according to the Philippine Statistics Authority.
BSP Deputy Governor Diwa C. Guinigundo said last month that rice, the country’s staple grain, accounts for nearly a 10th of the consumer basket used to track price movements.
Once the QR scheme is lifted, individuals and businesses can import rice but will pay a 35% tariff. This is against the current practice where the National Food Authority (NFA) limits the volume of rice imports every year and imposes higher tariffs on amounts that go beyond the minimum volume set by officials, done to prevent the influx of cheap rice and shield local farmers.
Rice imports have become a sensitive issue among state officials, resulting to a reported rift between Agriculture Secretary Emmanuel F. Piñol and Cabinet Secretary and NFA Council head Leoncio B. Evasco, Jr. over conflicting policies.
The BSP officials said the national government must ensure that it provides some relief to local farmers who could suffer from the influx of cheaper rice from abroad.
“[T]he negative impact on the country’s agriculture sector of the possible influx of cheaper rice imports should be compensated by a comprehensive government support package that will boost agricultural productivity and increase the competitiveness of the sector,” the report read.
Mr. Guinigundo earlier said that import tariffs collected by government should be “funneled back” to the agriculture sector by way of irrigation and farm-to-market roads that would help boost productivity, among others.
The central bank expects inflation to continue rising and peak within the third quarter, with the full-year average likely to settle at 3.4%. Inflation is likely to trend higher for the months ahead, with the BSP citing possible increases in power rates and transportation fares, as well as the “transitory” impact of the tax reform program pending in Congress.
Upbeat domestic activity is also expected to be sustained over the near term, allowing the BSP to hold fire on interest rate adjustments as the local economy would not need a fresh stimulus.
The Philippine economy expanded by an upwardly-revised 6.9% in 2016. Growth is expected to hit the government’s 6.5-7.5% goal this year, with Socioeconomic Planning Secretary Ernesto M. Pernia saying that the economy likely expanded by “around 7%” during the first quarter.
“Latest indicators of domestic demand continue to broadly point to firm growth prospects over the policy horizon,” the BSP added, noting strong figures reported for factory output, car sales, and public spending.
Business optimism was also steady during the quarter, supporting overall growth prospects.
The BSP will hold its next policy meeting on May 11, which will again come a week after the Fed’s two-day review.
Economists expect as much as two rate hikes from the BSP this year, which comes at a time of a change in the central bank chief as Governor Amando M. Tetangco, Jr. completes his second and final term by July 2. President Rodrigo R. Duterte has yet to name Mr. Tetangco’s successor.