MANILA, Philippines ? The Bangko Sentral ng Pilipinas (BSP) has expressed confidence that overall inflation would be within tolerable levels this year despite recent surge in sugar prices.
In a statement issued yesterday, BSP Deputy Governor and Officer in Charge Amando Suratos said the central bank still sees the average increase in consumer prices for 2010 settling within the official target of 3.5 to 5.5 percent.
Suratos said inflation in January proved that overall price movement was still on track to meet the full-year ceiling set by monetary authorities despite threats posed by what officials considered absurd increase in sugar prices.
Late last month, sugar prices were seen rising by double-digit levels, hitting a year-on-year increase of as much as 15 percent to P60 a kilo.
The Sugar Regulatory Administration (SRA) blamed the spread of false rumors of dwindling supply of the commodity for the steep increase in sugar prices. The SRA said there was no truth to the reports, stressing that existing supply is enough to last until October, or about two months after the milling season in August.
Despite the surge in sugar prices, however, overall inflation still remained manageable in January.
The National Statistics Office yesterday reported that the annual inflation rate, which measures the increase in consumer prices, stood at 4.3 percent last month. This was even below the low-end of the central bank's inflation forecast for the month, which was earlier announced to be 4.5 to 5.4 percent.
"Actual January 2010 number validates the BSP's view that inflation will converge to the target range.
As such, BSP believes that current monetary settings are appropriate, supportive of the need to safeguard price stability and to promote self-sustaining economic growth," Suratos said.
By "monetary settings," Suratos was referring to the existing policy stance of the BSP. The central bank currently helps maintain a low interest-rate environment primarily by keeping its own key policy rate at a historic low of 4 percent, among other measures.
Low interest rates are meant to boost borrowings, which should support consumption and investments, central bank officials said. Sustained low borrowing costs, however, because it spurs demand, eventually accelerates inflation.
The central bank is tasked to help stimulate the economy by adopting policies that will increase consumption and investments, but not by a level that will lead to the breaching of the inflation target.
Suratos said the fact that inflation stayed on track of the full-year ceiling meant that current policies of the BSP were still appropriate. Nonetheless, the BSP has already said it was prepared to conduct reversals of stimulus policies if it sees sufficient threat to the inflation target.
Last week, the BSP raised the rediscount rate but decided to maintain the key policy rate.
The key policy rate of 4 percent is what the BSP pays for overnight deposits made by banks to the central bank. The rediscount rate is what it charges for loans extended to banks in need of liquidity to be able to continue to lend even if they are tied with so much collectibles.
"BSP will continue to carefully monitor economic and financial developments, domestically and globally, in order to detect any possible buildup in inflationary pressures emanating from demand and supply forces and preemptively revisit and calibrate policy setting when warranted," Suratos said.
