MANILA, Philippines?The Bangko Sentral ng Pilipinas said the sharp appreciation of the peso, which made imported goods cheaper, might pull down inflation in October to its lowest level in 12 months.
Citing estimates by the BSP, Governor Amando Tetangco Jr. said the annual inflation rate might settle between 2.6 and 3.5 percent in October. The low end of the range, if realized, would be the slowest since November last year.
Should inflation in October fall within the projected range, the average for the first 10 months of this year would be 4 percent. In the first nine months, the average increase in consumer prices stood at 4.1 percent.
?Inflation is likely to remain low as increases in international oil prices and water rates are being offset by the appreciation of the peso and decline in electricity rates,? Tetangco said.
Prices of electricity, oil and water registered increases during the month, but Tetangco said the impact on overall inflation would likely be minimal compared with the effect of the rising peso on consumer prices.
The peso hovered in the 43-to-a-dollar territory this month, boosted by the continued surge in foreign capital inflows, mainly in the form of portfolio investments.
The strengthening of the peso has caused discomfort among exporters.
The export industry fear the continued strengthening of the peso against the dollar, which jacked up the prices of local products, would dampen their competitiveness.
The rise of the peso is helping keep domestic inflation well within the official target of the government.
The BSP has set its inflation target for 2010 at a range of 3.5 to 5.5 percent.
For 2011 to 2014, the central bank sees inflation averaging between 3 and 5 percent.
As inflation remains benign, the BSP has kept its key policy rates at historic lows.
The central bank?s overnight borrowing and lending rates, which influence bank lending rates, stand at 4 and 6 percent.
The rates were brought down to record low levels to help the economy avoid a recession, especially at the height of the global turmoil last year.
Policymakers said the low interest-rate environment pushed demand for loans, which were used to beef up consumption and investments.