Inflation to stay within target – BSP

THE Bangko Sentral ng Pilipinas (BSP) said inflation this year would remain within its target, dismissing a forecast issued earlier by HSBC.

“Our current runs still show manageable inflation in 2010 and 2011, within target range for both years. This indicates we have policy space. Therefore, the exit strategy from the monetary measures will be done gradually and in phases,” BSP Governor Amando Tetangco Jr. said.

Tetangco said the BSP has the policy space to maintain the liquidity measures and key policy rates, as inflation remains manageable.

The BSP forecast inflation would fall within the target range of 3.5 percent to 5.5 percent this year and 3 percent and 5 percent next year.

Tetangco said the BSP’s primary consideration for the timing and speed of the exit strategy would continue to be the inflation outlook. It has set its plan to withdraw its liquidity enhancing measures, initially targeting to rationalize the pricing for its rediscounting facility.

The BSP had raised the budget for the rediscounting facility and reduced its reserve requirement on banks to prevent the global credit crunch from taking hold in the domestic market.

“As we execute our exit, we will be mindful of our own domestic underlying conditions, including expectations in the real sector such as unemployment and demand, but the primary focus will still be the inflation outlook,” Tetangco said.

The unemployment rate in October was estimated at 7.1 percent, higher than 6.8 percent in October 2008, according to the National Statistics Office. The National Capital Region posted the highest unemployment rate at 11.8 percent.

Frederic Neumann, HSBC senior economist, had said inflation would hit 6 percent this year if the BSP would maintain its key policy rates this year.

He said the BSP should hike rates by 75 basis points by the end of the second quarter or after the May elections as inflation could reach more than 5 percent in the second half.

The BSP’s key policy rates have remained steady since August last year at 4 percent for the overnight borrowing facility and 6 percent for the overnight lending. –MARICEL E. BURGONIO Senior Reporter, Manila Times