Central bank sees inflation dropping to 3.5% in 2009

THE central bank has lowered its inflation forecast this year to 3.5 percent from 3.9 percent, Bangko Sentral Governor Amando Tetangco Jr. said at a briefing for the Management Association of the Philippines yesterday.

“The latest forecast of 3.5 percent for the year will give us some room,” Tetangco said.

“Given the increase in oil prices and the exchange rate movements, we will adopt a more measured approach to monetary policy this time.”

Tetangco said the drop in oil and transport prices—the reason for the lower inflation forecast—would offset the pressures arising from a weaker peso.

He declined to offer forecasts on the exchange rate, saying the market would determine the peso’s worth. But he did not rule out some central bank intervention “to smoothen volatilities.”

Calyon, a unit of France’s Credit Agricole SA, yesterday said the peso would slide by 8.7 percent—to 53 to the dollar by the end of June—as workers overseas sent less money home and a widening budget deficit deterred investment in the country’s assets.

“A deteriorating fiscal performance will likely add to contracting remittances, clouding the outlook for the economy and the currency,” said Sebastien Barbe, Calyon’s Hong Kong-based head of emerging market strategy.

“Against the backdrop of renewed risk aversion, we expect the peso to depreciate in the coming months.”

The central bank sees inflation in March falling to 5.9 to 6.8 percent from February’s 7.3 percent, and because of the drop in crude oil prices and the 50-centavo reduction in transport fares.

Inflation in February increased from January’s 7.1 percent, which analysts said could be a blip because inflation was still seen declining the rest of the year.

The central bank has geared its monetary policy toward achieving the inflation target it sets with other economic managers.

The central bank’s target this year is an inflation rate of 2.5 to 4.5 percent, and its target next year is 3.5 to 5.5 percent. Eileen A. Mencias, with Bloomberg