Inflation forecast above mid-point of target range

Published by rudy Date posted on February 11, 2011

THE Philippine central bank on Thursday maintained its key interest rates at record lows, but raised its inflation forecast for this year way past the mid-point of its target range on expectations that demand-side price pressures could develop in the near future.

At its first meeting for 2011, the policy-making Monetary Board of the Bangko Sentral ng Pilipinas (BSP) decided to maintain its policy rates at 4 percent for the overnight borrowing or reverse repurchase (RRP) and 6 percent for the overnight lending or repurchase (RP).

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

The BSP’s policy rates have dwelled at record lows since July 2009.

BSP Governor Amando Tetangco Jr. said the Board noted that prevailing price and output conditions suggest that the current policy stance continues to be appropriate “for the time being.”

Latest baseline forecasts indicate that inflation will likely settle within the target range of 3 percent to 5 percent for 2011 and 2012. Core inflation also has been stable while inflation expectations have so far remained manageable, Tetangco said.

On top of that, the growth of credit and liquidity remains moderate and there is, thus, far limited evidence of spillovers or second-round effects of supply shocks, he said.

Although food inflation has recently risen, the Philippines has been the least affected in the region because of favorable domestic supply conditions, the BSP chief said.

Despite this benign outlook, monetary authorities decided to revise upward their inflation forecast to 4.4 percent for this year from the earlier 3.6 percent estimate.
The 2012 forecast also was raised to 3.5 percent from the previous 3 percent.

Tetangco said the balance of risks to the inflation outlook has tilted further to the upside, with more risks expected in the near future.

BSP Deputy Governor Diwa Guinigundo said the higher inflation forecast incorporated the P10 flag-down taxi rate, the P1 increase in jeepney fares, the P6 hike in air-condition bus fares, and P5 for non-air-conditioner buses.

The central bank also included a 10-percent increase in the wages of government employees starting July, as well as the 9-percent increase in sugar prices.

The BSP expects oil prices to average at $96.67 per barrel in 2011 and $97.38 per barrel in 2012.

Guinigundo said demand-side price pressures could develop in the near future as actual domestic output continues to expand above historical trend.

A weaker global recovery however could dampen external demand while a sustained strengthening of the peso should help temper the impact of imported inflation. –LAILANY P. GOMEZ REPORTER, Manila Times

Short URL: http://www.manilatimes.net/?p=1876

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