February inflation seen at 3.8-4.6%

The Bangko Sentral ng Pilipinas expects inflation in February to settle between 3.8 and 4.6 percent, with higher cost of petroleum and rice seen driving overall consumer prices.

In January, inflation stood at 4.2 percent, the fastest in two years.

BSP Governor Amando Tetangco Jr. said Friday that inflation was expected to be consistently higher this year than last year’s average of 3 percent due to supply-side pressures, including disruptions caused by recent natural calamities.

Nonetheless, he stressed that inflation this year, which is expected to stay in the 4-percent territory, would remain manageable and within the official target of 3 to 5 percent.

“We see inflation inching up but still remaining manageable over the policy horizon,” Tetangco said in a speech during an economic forum organized by Security Bank.

The BSP expects the Philippines to remain in the so-called “sweet spot” this year, with inflation staying within target even if economic growth stays robust.

The government expects the economy to grow anywhere between 6.5 and 7.5 percent this year from last year’s 7.2 percent.

Tetangco said productive capacity and efficiency in the economy have improved over the years and these were the reasons why the rising      demand for goods and services was not causing worrisome inflation.

“We see credit to continue going to productive sectors, including those with strong linkage to other sectors. We see improvement in the country’s potential output with improved efficiency,” Tetangco said.

Nonetheless, he cited threats to the “sweet spot” that the BSP was closely monitoring and that the BSP was studying if there was a need to adjust its key policy rates.

These risks include the likely move of the US Federal Reserve to continue with the tapering of its stimulus program amid observations of an improving American economy.

The tapering so far this year has caused an outflow of portfolio capital from emerging markets, including the Philippines. Continued tapering, or further cuts in the monthly bond purchases by the Fed, poses the risk of sharper market volatility.

“Globally, we have seen the process of normalization. We are looking at how this can affect the Philippine economy. We have to make a decision whether we need to change the stance of monetary policy or not,” Tetangco told reporters at the sidelines of the forum.

The assessment of the need to tweak the policy rates, which affect commercial interest rates, is anchored on views that an increase could help temper fund outflow and address market volatility. Michelle V. Remo