BSP sees inflation rising

MANILA, Philippines – After easing to its lowest level in 29 months, the Bangko Sentral ng Pilipinas (BSP) sees inflation rising due to soaring oil prices, higher food prices, and the continued weakening of the peso against the US dollar.

BSP Governor Amando Tetangco Jr. said in a text message to reporters that inflation for March would range between 2.2 percent and 3.1 percent compared to a 29-month low of 2.7 percent in February.

“Inflation could be higher than February’s rate of 2.7 percent if the impact of higher international prices, the weak peso, and increases in the prices of certain food items were not fully offset by lower utility rates and lower prices of some vegetables,” Tetangco stressed.

Despite the projected uptick in inflation, the BSP chief is still confident that inflation would fall within the three to five percent target set by the BSP for this year and next year.

However, he pointed out that the possibilities of second round effects resulting from higher oil prices point to higher inflation ranges ahead.

Inflation eased to 2.7 percent in February from four percent in January bringing the average inflation to 3.3 percent in the first two months of the year.

He added that the BSP would continue to closely monitor developments to see if these would result in further second round effects.

“We are mindful how these could reflect in the path of inflation over the policy horizon, the assessment of which will be the principal consideration in setting policy moving forward,” Tetangco said.

The BSP’s Monetary Board has so far slashed interest rates by 50 basis points this year bringing the overnight borrowing rate back to a record level of four percent and the overnight lending rate to six percent.

Due to benign inflation outlook and moderate global economic growth, the BSP reduced interest rates by 25 basis points last January 19 and by another 25 basis points last March 1.

The next policy rate-setting meeting of the Monetary Board is scheduled on April 19.

“Our latest assessment is that our policy stance remains appropriate,” Tetangco reiterated.

The BSP used $90 per barrel to $110 per barrel of Dubai crude in setting its inflation target of three to five percent. Dubai crude has already exceeded the $120 per barrel level.

Tetangco earlier said the government’s inflation target of three to five percent would be breached if Dubai crude trades between $150 and $160 per barrel.

Based on its latest inflation forecast announced last March 1, the BSP sees inflation averaging 3.1 percent this year and 3.4 percent next year.

However, the forecast is expected to be raised next month in light of the unabated rise in the pump prices of petroleum products arising from soaring oil prices in the world market as well as the recent provisional 50-centavo jeepney fare hike approved by the government.

The BSP has adopted an accommodative monetary policy stance slashing interest rates to boost the country’s gross domestic product (GDP) growth that slackened to 3.7 percent last year from 7.6 percent in 2010 due to weak global trade and cautious spending by the Aquino government.

The Cabinet-level Development Budget Coordination Committee (DBCC) sees GDP recovering to five to six percent this year on the back of recovering exports sector and higher government spending. – Lawrence Agcaoili (Philstar News Service, www.philstar.com)