Bangko Sentral hikes inflation forecast for next two years

THE Philippine central bank on Wednesday kept its key policy rates on hold for the 13th time amid manageable price trends and favorable economic conditions, but raised its inflation forecast for this year and the next two years.

At its last meeting for 2010, the policy-making Monetary Board decided to maintain the BSP’s key policy interest rates at 4 percent for the overnight borrowing or reverse repurchase (RRP) rate, and 6 percent for the overnight lending or repurchase (RP) rate.

The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also left unchanged.

The BSP’s policy rates have been kept steady since July 2009.

BSP Governor Amando Tetangco Jr. said the decision was based on the Board’s assessment that inflation remains manageable, indicating that current policy settings continue to be appropriate.

He had said this month’s price movement may settle at a range of 2.5 percent to 3.4 percent, or well within the 3.5 percent to 5.5 percent target for 2010 and consistent with the 3 percent to 5 percent targets for both 2011 and 2012.

“The forecasts are also supported by well-contained inflation expectations which continue to be within target over the policy horizon,” Tetangco said.

The Board also noted that the growth in credit and liquidity are broadly at pace with economic activity.
On top of this, current movements of asset prices such as in the equities and property markets, do not appear to pose any short-term challenge to the economy, the BSP said.

Monetary authorities noted that possible inflation pressures could come from generally higher global food and oil prices as well as the approved increase in toll way rates.

As a result, the Board has decided to revise upward its inflation forecast to 3.8 percent from 3.6 percent for 2010, to 3.6 percent from 2.4 percent for 2011, and to 3 percent from 2.8 percent in 2012.

“While the rebound in investment is likely to add to productive capacity, leading to higher potential output over the medium term, a stronger momentum in demand growth may add to inflationary pressures in the short term,” Tetangco said.

He added that the BSP will remain vigilant against any emerging risks to the inflation outlook and will adjust policy settings if and when needed to ensure that future inflation remains consistent with the medium-term target, while being supportive of sustainable economic growth. –LAILANY P. GOMEZ REPORTER, Manila Times