Inflation slows; BSP open to rate cuts
Reuters
First Posted 02:27:00 01/07/2009
Filed Under: World Financial Crisis, Economy and Business and Finance, Economic Indicators, inflation, Central Banks, Interest Rates
MANILA, Philippines — Inflation fell in December to its lowest in nine months, tracking similar declines in the region, and the central bank said it would consider further rate cuts as oil prices continued to slide.
Analysts said the central bank, Bangko Sentral ng Pilipinas (BSP), could lower its policy rates by as much as half a percentage point at its policy meeting on Jan. 29 to support domestic demand in the wake of recession in many major Philippine export markets.
Some analysts foresee a total of one percentage point cut in rates this year to boost sluggish growth.
"As inflation risks, particularly from food and fuel prices, continue to recede, we will carefully consider opportunities for monetary easing, mindful of potential tightening financial conditions," BSP Governor Amando Tetangco Jr. said in a mobile text message to reporters.
That was one of the strongest statements yet from the governor on potential rate cuts, coming after the statistics office said inflation, as measured by the year-on-year rise in the consumer price index, slowed to 8.0 percent in December from 9.9 percent in November.
The core inflation rate in December slid to 7.3 percent from a year earlier, breaking a four-month uptrend. The last time core inflation eased was in July.
The data was in line with regional trends, with Thailand, Indonesia and Taiwan all recording slower than expected inflation rates in December.
The Philippines was the last major Southeast Asian country to join a global round of interest rate easing when it slashed its overnight rates by half a percentage point last month to 5.5 percent for borrowing and 7.5 percent for lending.
Analysts expect the wave of rate cuts in the region to continue this year.
"I don't think at this point inflation is the thing to worry about, it is really growth," said Luz Lorenzo, economist at ATR Kim-Eng Securities in Manila.
"The challenge is how to loosen monetary policy without putting the financial system at risk."
Others cautioned that while consumer prices have generally slowed, there were still inflation risks ahead with the Philippines' high dependence on rice imports and geopolitical concerns weighing on oil prices.
"On balance, though, it is apt to conclude that the overall disinflation trend will be supported by broad-based price trends as well as the sharp fall in price pressures in large regional economies such as China, even though some red-flags to the inflation landscape will remain," said Vishnu Varathan at Forecast Pte.
"It is easy to see the policy priority must, at this juncture, be aligned to spurring growth more than combating the shadows of hazards to price stability."
The economy is likely to remain sluggish this year, with growth in the gross domestic product expected at 3.7-4.7 percent from a likely 4.6-percent expansion in 2008 on lackluster exports and an anticipated slowdown in remittances, which power consumption.
Growth reached a 31-year peak of 7.2 percent in 2007. With editing by INQUIRER.net
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