Rice tariffication to temper inflation

Replacing import quotas on rice with tariffs would stand as a significant counterweight to rising prices, a senior central bank official said, noting that its timely passage would temper overall inflation.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said introducing rice tariffs by the third quarter could pull inflation lower.

“If Congress and the Senate are able to pass the rice tariffication bill to be implemented in the third quarter of the year, we expect some reduction by at least 0.4 percentage points (ppt) for 2018 and next year around 0.6%,” Guinigundo told reporters last week.

The central bank expects inflation to average 4.6% for 2018. Changes in the rice imports regime are expected to mitigate price pressures, although its impact would not be enough to bring the full-year print back to the 2-4% target range.

Prices of widely used goods hit a fresh peak in April as headline inflation came in at 4.5%, accelerating from March’s 4.3% and 3.2% a year ago. This pushed the year-to-date average to 4.1%, above the government’s 2-4% target range for 2018.

Delays in the passage of the law would mean a softer impact on inflation, with Guinigundo saying that rice tariffs would ease the overall pace by 0.2% if implemented by the fourth quarter. Philippine authorities can limit the volume of rice imports every year via the quantitative restrictions (QR), which is a preferential trade deal secured by the Philippines since 1995.

This cap is in place to prevent the influx of cheap rice from abroad to protect local farmers. Once lifted, individuals and businesses can import additional volumes of the crop but will have to pay a 35% tariff.