Inflation to remain stable says Bangko Sentral

The Bangko Sentral ng Pilipinas (BSP) said that the inflation would remain stable despite the country’s anticipated economic expansion in the coming quarters.

“It doesn’t necessarily mean that a higher economic growth will lead to a very high inflation rate. Remember [in] 2007, we were able to sustain a very stable inflation rate of about 3.2 percent,” Deputy Governor Diwa Guinigundo said.

The central bank official was referring to the 7.6-percent gross domestic product (GDP) growth in the second quarter of 2007 and 7.1-percent in the fourth quarter, both of which were accompanied by a benign inflation rate.

“I think very slowly we have been able to address the structural issue of inflation especially on the agricultural side,” he said.

On Thursday, the government announced that the economy, as measured by its GDP, expanded by 7.3 percent in the first quarter from 0.5 percent the same period last year. The growth was fueled by election-related spending, overseas remittances and a recovery of the global economy.

Guinigundo said that even though the recent growth meant that the demand for goods and services will be stronger, there are still mitigating factors, like lower oil prices, commodity and strong exchange rate that would keep inflation from spiking in the coming quarters.

“Because the global economy proved to be weaker than expected, oil prices went down to just $70 per barrel. Second, metals and other important food and non-food items are not surging up,” the central bank official said.

“Third, the exchange rate continues to be generally stable. It didn’t reach 49, 50 or 52 [against the US dollar]. It will really help us manage inflation,” Guinigundo said.

The BSP set inflation target range at 3.5 percent to 5.5 percent for 2010 and 3 percent to 5 percent next year.

The Monetary Board, the policy-making body of the central bank, is set to meet next week. It has marked its monetary easing cycle in August 2009 after it brought down its overnight borrowing and lending rates to record lows of 4 percent and 6 percent, respectively.

In a research note, JP Morgan Chase said it expects that the BSP will start tightening its monetary policy by 25 basis points.

“We do note though that the decision will be close in light of heightened risks emanating from global financial markets and sovereign stress elsewhere in the world,” it said.

Capital Economics, on the other hand, sees that the BSP will keep rates on hold but it would start to hike these by 25 basis points in July.

“We also continue to forecast that rates will rise to 5 percent by year-end and will peak at 5.5 percent by end-2011,” the UK-based research firm said. –LAILANY P. GOMEZ Reporter, Manila Times