Central bank says economy will normalize in early ’09
It says inflation will peak in 3rd quarter
By Doris Dumlao
Philippine Daily Inquirer
First Posted 02:46:00 07/05/2008
MANILA, Philippines—The central bank, Bangko Sentral ng Pilipinas (BSP), said Friday the Philippines, currently hounded by slackening economic growth and rising inflation, would spring back to a “normal” business cycle early next year.
After the government reported that year-on-year inflation rate rose a 14-year high of 11.4 percent in June on surging fuel and food prices, BSP Governor Amando Tetangco Jr. said the global trend of monetary tightening would ease demand-driven consumer price pressures.
“We share the view that current oil and food prices are hardly sustainable, producing global slowdown and widespread inflation in all countries. Demand pressures will moderate as monetary policy is generally tightened,” Tetangco said, after the June inflation report was released by the National Statistics Office.
Tetangco has repeatedly signaled the BSP’s readiness to further tighten monetary policy if needed to counter rising inflation.
“For the Philippines, we should be back to normal cycle by early next year,” he said Friday.
“This trend [of high inflation] is expected to peak during this third quarter and to start coming down in the fourth quarter through [to] 2009,” he added.
He noted that the inflation rate, as expected, had risen to double-digit level on account of the unprecedented jump in world oil prices.
Oil based on US futures for the benchmark light, sweet crude is trading at record-highs of about $144 a barrel.
“As a result, domestic pump-price increases triggered large price build-up across wide commodities and services groups,” Tetangco said.
The Philippines is a net importer of crude oil and is also the world’s biggest importer of rice.
The BSP raised its overnight borrowing rate by a quarter-percentage point at its policy meeting in early June—the first monetary tightening in three years. It is widely expected to continue this bias for monetary tightening for the rest of the year.
The next policy rate-setting meeting of the BSP’s Monetary Board will be on July 17.
The minutes of the last Monetary Board meeting in early June said, “The buoyancy of domestic demand suggests some room for a measured policy response. Favorable conditions arising from a respectable and still solid domestic growth as well as a strong external payments situation imply that the economy can withstand a measured tightening.”
Elsewhere in the Asia-Pacific region, Indonesia, China and Taiwan also raised their benchmark interest rates.
The inflation-targeting BSP forecasts consumer prices to rise by an average of 7.0-9.0 percent this year, compared with its maximum limit of 5.0 percent. For next year, it expects average inflation to drop to 4.0-6.0 percent against the maximum target of 4.5 percent. With editing by INQUIRER.net
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