BSP chief sees inflation creeping up

MANILA, Philippines –  The Bangko Sentral ng Pilipinas (BSP) sees inflation breaching the higher end of its full-year target of three percent to five percent in the next few months due to escalating global oil and food prices.

BSP Governor Amando M. Tetangco Jr. said on the sidelines of the economic briefing and general membership meeting of the Management Association of the Philippines (MAP) that there be some months this year when inflation would exceed five percent but would average inflation would still fall within the target of three percent to five percent.

“There would be months wherein inflation could exceed five percent. Inflation path is going to go up and then taper off so by 2012 it would be well within the target range and for 2011 it is going to be close to the higher end of the range,” Tetangco stresed.

The BSP has set an inflation target of three percent to five percent between 2011 and 2014. Inflation averaged 3.9 percent in the first two months of the year from 4.2 percent in the same period last year after kicking up to a nine-month high of 4.3 percent in February.

The BSP raised interest rates by 25 basis points last March 24 as a preemptive move to cushion the impact of escalating global oil and food prices. The BSP kept its key policy rates at record lows for 20 months since July 2009 due to the benign inflation outlook.

This brought the overnight borrowing rates to 4.25 percent from four percent and the overnight lending rate to 6.25 percent from six percent. The BSP slashed key policy rates by 200 basis points between December 2008 and July 2009 to cushion the impact of the global financial crisis on the domestic economy.

Prior to the tigthening, the Philippines was the only major economy in the Asia Pacific region that has not raised interest rates since the end of the global economic meltdown.

Tetangco pointed out that the Philippines is not behind the curve in terms of its monetary policy stance and that monetary authorities would act accordingly to make sure that inflation expectation is well anchored. –Lawrence Agcaoili (The Philippine Star)