BSP sees inflation rate falling between 3 and 5% in 2011

MANILA, Philippines—The Bangko Sentral ng Pilipinas has estimated that inflation will settle between 3.7 and 4.7 percent, saying price movements in the first four months of the year still indicated attainability of the full-year inflation goal.

Under the government’s macro-economic targets, inflation should fall between 3 and 5 percent this year. Economic managers said such a pace of increase in prices would be tolerable and supportive of efforts to boost businesses.

Should the central bank’s April inflation forecast happen, inflation in the first four months would settle between 4 and 4.25 percent. Earlier, the National Statistics Office reported that inflation averaged at 4.1 percent in the first quarter.

Although global oil prices are rising, largely due to the political tensions in the Middle East, economic managers said the sufficient supply of rice and other food products has been helping keep increases in overall domestic prices manageable.

They also said the strong peso somewhat helped ease the increase in the price of imported oil. The peso, which now hovers in the 43-to-a-dollar territory, has appreciated by more than 1 percent since the start of the year and by more than 5 percent from its value in April 2010.

“… (P)rices [in April this year] have remained well behaved. Nevertheless, we will continue to monitor developments, particularly movements in international commodity prices, to see if there would be a need to make adjustments in our policy stance,” BSP Governor Amando Tetangco Jr. told reporters.

Last month, the BSP raised its key policy rates by 25 basis points amid prices pressures, largely those coming from global oil prices. The central bank’s overnight borrowing and lending rates now stand at 4.25 and 6.25 percent, respectively.

The hike in interest rates, which is expected to temper demand for bank loans and thus ease demand and consumption of non-essentials, is meant to ensure average inflation for this year would stay within target. Prior to the rate hike last month, the BSP’s overnight borrowing and lending rates, which influence commercial interest rates, were at historic lows.

Meanwhile, Finance Secretary Cesar Purisima, a member of the BSP’s Monetary Board, said in a press briefing on Thursday that based on his opinion, the 25-basis-point increase in the central bank’s key policy rates was enough for the year.

He said more rate increases this year would not be necessary just to keep inflation within target.

“The 25-basis-point increase is enough for now. Those who project that inflation will be much higher [than this year’s target] are out of line,” Purisima said.

Fears of beyond-target inflation have been raised following the spate of political protests in the Middle East and North Africa (MENA), which are oil-producing regions.

A few economists said inflation could accelerate this year, and may reach a little above 5 percent, partly because of the tensions in the MENA that could adversely affect oil-importing countries like the Philippines.

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