Inflation to exceed target in coming months – BSP

Published by rudy Date posted on March 30, 2011

THE Bangko Sentral ng Pilipinas (BSP) on Tuesday said inflation will likely exceed its target range in the coming months.

BSP Governor Amando Tetangco Jr. said inflation could exceed the 5-percent ceiling, but will taper off toward the end of the year.

“We see inflation path going up and down. So, for 2012 we see it averaging at 3.4 percent, which is within the 3 percent to 5 percent target range. Now, we have to wait for March. But for 2011 it’s going to be close to the higher end of the range,” the BSP chief told reporters on the sidelines of the Management Association of Philippines’ forum.

The central bank had said this month’s price movement may settle at a range of four to 5 percent, with bias leaning on the higher tip of the range amid volatile movements in the international prices of oil.

“Inflation expectation has started to rise, but if you look at inflation expectations coming from Asia Pacific the average is still within the target range for the year. But we need to make sure that it remains well-anchored and make sure that any possible second round effect will be dealt with in the early stage. We had been preemptive, that’s why we raised the rates,” Tetangco said.

He said domestic inflation has not spiked unlike in other countries and that the Philippines’ real policy rates remained positive until January.

“We are not saying that there will be further rate increases, but as I said we will move and take further actions if such actions are warranted. What we are looking at right now is liquidity. Policy rates and bond yields are diverging once more. One of the reasons is that there is more than enough liquidity in the system,” Tetangco said.

After keeping its rates steady for almost two years, the policy-making Monetary Board on March 24 decided to increase by 25 basis points its key policy rates to 4.25 percent for the overnight borrowing and 6.25 percent for the overnight lending.

The decision was based on signs of stronger and broadening inflation pressures as well as an upward shift in the inflation risks amid a combination of sustained strong global recovery and supply disruptions caused by the political unrest in Middle East and North Africa.

Tetangco said core and baseline inflation have started to rise.

The BSP had said the preemptive response would minimize the overall impact of rising inflation on domestic economic activity by helping to firmly anchor inflation expectations, and safeguarding price stability without hurting the economic recovery.

The market expects another 25 basis points hike toward the end of the year for a total of 50 basis points increase to 4.50 percent.

Others, however, expect a 75 basis points to a percent hike. –Lailany P. Gomez, Reporter, Manila Times

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