Inflation won’t exceed 6% – BSP

MANILA, Philippines – Monetary authorities said over the weekend that inflation would no longer hit six percent this year in light of lower oil prices, stable commodity prices, cheaper power and water rates as well as the stronger peso.

In an interview with reporters, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said monetary authorities are convinced that inflation would no longer hit six percent as the Monetary Board has already lowered its inflation forecast to 4.7 percent instead of 5.1 percent this year and to 3.6 percent instead of 3.7 percent next year.

“The monthly projection from May up to September will show some downward trends relative to what we have in April, Guinigundo replied when asked whether inflation could still hit six percent.

Last April 22, the BSP raised its inflation forecast to 5.1 percent instead of 4.64 percent this year and 3.7 percent instead of 3.45 percent for next year due to the impending wage hike and transport fare increase.

However, he explained that positive factors such as stable commodity prices, lower pump prices of petroleum products, the strong peso, and the declining electricity and water bills further outweigh negative factors such as the wake increase and transport fare hike

“There were changes between April during the last meeting of the Monetary Board and now June 3. We have a stronger peso, we have lower power rates and energy bill and therefore the whole range of the monthly inflation path will be affected by those more positive changes or developments in the market,” he added.

The BSP official was quick to clarify that authorities do not believe that inflation has already peaked this year.

“It is not that we peaked already but there is a shift. The baseline projections experienced based on our latest exercise show a downward shift relative to what we saw in April,” he said.

Inflation eased to 4.3 percent in May from 4.4 percent in April on the back of cheaper oil, power, and water rates justifying the decision of monetary authorities to key its key policy rates unchanged amid Europe’s debt crisis, the growing tension between North and South Korea as well as the stronger-than-expected economic growth in the first quarter of the year.

The National Statistics Office (NSO) reported yesterday that inflation slowed down to 4.3 percent bringing the average inflation to 4.3 percent for the first five months of the year from 5.7 percent in the same period last year.

The BSP decided to keep its rate unchanged at record lows last Thursday but decided to put on hold the further lifting of liquidity enhancing measures that were put in place way back in November of 2008 to cushion the impact of the global financial crisis on the domestic economy.

The BSP has kept its rates unchanged for eight consecutive policy-setting meetings since July last year.

It would be recalled that the BSP decided to slash its key policy rates by 200 basis points between December of 2008 to July of 2009 as part of its accommodative stance to cushion the impact of the global economic meltdown. This brough the overnight borrowing rate at a record low of four percent and the overnight lending rate at six percent.

Meanwhile, Guinigundo said a growth of 10 percent to 12 percent on the domestic liquidity would not fan inflation.

“While liquidity is very important, there are other factors that could also affect the dynamics of inflation. I think between 10 and 12 percent of domestic liquidity is something that we can be comfortable with. It will really depend on other significant factors,” he added. –Lawrence Agcaoili (The Philippine Star)