Exuberant

You know how that adage goes: if it looks too good to be true, it probably isn’t.

The inflation reading for the last month brought the rate down to 1.9 percent. That is very good news. It is about a point lower than estimated. That is significant.

One cannot blame our monetary authorities for their exuberance. Some are claiming we have beaten the inflationary scourge.

True, the slowing inflation rate was, to a major extent, the result of tough interest rate policies. Even after other countries cut their rates, we continued holding on to ours.

The argument can be made that, by bringing down the rates too late in the curve, we might have unduly given up opportunities to expand our economic expansion more quickly.

The high interest rate regime conservatively maintained beyond the period of necessity may be compared to running our car with the hand brakes on. That stresses out the engine.

Before cutting interest rates, our monetary authorities first reduced the reserve requirement imposed on banks. The high reserve requirement kept banks from lending far more than they actually did. Lending less than they possibly could, the high reserve requirement prevented more robust bank earnings.

At any rate, the banks now have a lot more pesos to lend. In a while, we should know if borrowers respond strongly. The comparatively higher interest rate prevailing could serve to rein in the appetite to borrow more to invest. But we are promised more heftier interest rate cuts over the coming weeks and months.

Beyond monetary policy, the lower inflation rate registered reflects a convergence of beneficial factors. These factors may not be recurrent.

The biggest factor is the relatively cheaper fuel prices we have been enjoying through September. Slower economic expansion in China and in several major economies tempered demand for oil. Despite OPEC’s efforts to cut production levels, supply of the vital commodity in the global market remains ample.

Oil will not be as cheap in the coming months. The possibility of a wider conflict in the Middle East caused oil prices to spike back up again.

Should Israel decide to bomb Iran’s oil processing facilities in retaliation for last week’s