Bangko Sentral Governor Amando Tetangco Jr. conceded Tuesday that inflation rate may exceed the government’s target range by the second or third quarter this year, which could prompt the monetary board to raise further its borrowing cost.
“There might be months when it [inflation] could exceed 5 percent, but this is going to taper off. The inflation path could see an uptrend, then downtrend,” Tetangco told reporters at the sidelines of the annual general membership meeting of the Management Association of the Philippines at the Peninsula Manila Hotel in Makati City.
Most economists now expect Bangko Sentral to raise its interest rate by another 75 basis points until the end of the year, after a 25-basis point hike last week. Tetangco himself indicated further rate hikes in the future.
“We will move and we will take further actions, because as I see it, the liquidity level, the policy rates and bond yields now diverge. One of the reasons is that there is more than enough liquidity and some excess in liquidity in the system,” he said.
Tetangco said the monetary board would do everything to achieve price stability, which is the prime mandate of the Bangko Sentral. “When there is a trade off, Bangko Sentral would choose price stability over economic growth,” he said.
Inflation rate hit a nine-month high of 4.3 percent in February, led by higher crude oil prices amid the political tension in the Middle East and North Africa. Bangko Sentral expects the March inflation to be within a range of 4 to 5 percent.
Real policy rate, or the difference between the policy rate of the Bangko Sentral and the actual inflation rate, hit the negative territory for the first time in many months in February, prompting the monetary board to adjust its rates.
Tetangco said the Bangko Sentral raised its borrowing cost by 25 basis points to 4.25 percent last week as a preemptive move, since the inflation target range of 3 to 5 percent was at risk.
Full-year inflation rate is now seen at the higher end of the target range of 3 to 5 percent in 2011. Tetangco said inflation rate in 2012 would be well within the target range, probably averaging 3.4 percent.
Another factor being considered by Bangko Sentral is the inflation expectation, represented by the outlook of economists and businessmen.
“What we are trying to address now really is inflation expectation because of all the developments that are mostly external in origin such as oil price, food price, etc.,” he said.
“We need to make sure that the inflation expectation remains well anchored and that any possible second round effects will be dealt with at an early stage,” he said. –Roderick T. dela Cruz, Manila Standard Today
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