BSP set to refresh inflation forecast

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) will refresh its 2011 inflation forecast this week to determine whether there is a need to further change its monetary policy stance in light of the escalating prices of global oil and food, and their possible second round effects.

BSP Governor Amando M. Tetangco Jr. said in an interview with reporters that inflation remains within the three-to five-percent target set by monetary authorities for 2011.

“We have to refresh our inflation forecast to see if there is a need to change our policy stance,” Tetangco stressed.

The BSP’s Monetary Board is scheduled to hold its policy rate-setting meeting on May 5.

The National Statistics Office (NSO) is also scheduled to release the inflation figure for the month of April on Thursday.

The BSP chief sees inflation last month as well behaved and would range between 3.7 percent to 4.7 percent, or well within the full year target of three to five percent despite the escalating prices of oil and food in the world market.

Last March 24. monetary authorities raised its full year inflation forecast to near the higher end of the target of five percent instead of 4.4 percent but lowered its inflation forecast for next year to 3.4 percent instead of 3.5 percent.

The continued build-up in inflation pressures prompted the BSP’s Monetary Board to jack up interest rates by 25 basis points last March 24 after keeping its policy stance unchanged for 20 straight months dating back to July 2009. This brought the overnight borrowing rate to 4.25 percent and the overnight lending rate to 6.25 percent.

The interest rate hike, according to the BSP, was a pre-emptive move to keep inflation expectations well anchored amid the surging oil and food prices in the world market.

The BSP slashed interest rates by 200 basis points between December 2008 and July 2009, bringing the overnight borrowing rate to a record low four percent and the overnight lending rate to six percent to cushion the impact of the global financial crisis on the domestic economy.

This helped the Philippines post its strongest economic growth in 34 years after its gross domestic product (GDP) expanded by a surprising 7.3 percent last year from 1.1 percent in 2009. The growth was achieved amid a low inflation of 3.8 percent that was within the lower end of the target of 3.5 percent to 5.5 percent for 2010.

However, Tetangco pointed out that risks to inflation continue to stay on the upside, prompting monetary authorities to closely monitor second round effects.

He said the price of Dubai oil continues to stay above the BSP assumption of $110 per barrel over the past few months.

The BSP chief said possible second round effects include transport fare hike, toll fee increases, petitions for wage hike, and others.

“These are signs of possible second round effects that we have to watch closely,” he stressed. –Lawrence Agcaoili (The Philippine Star)