Inflation seen to stay within target range | Inquirer Business

Inflation seen to stay within target range

Peso fall impact not as strong as before
/ 05:35 AM September 26, 2014

MANILA, Philippines–The Philippine central bank remains confident of meeting its target range for this year despite the peso’s recent depreciation, which makes imported goods more expensive.

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said the “pass-through” effects of the peso’s value to consumer prices had waned over the years.

“The impact is not as strong as it used to be,” Tetangco told reporters on Thursday.

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Inflation was steady albeit elevated in August at 4.9 percent, the same level as the month before, pushing the year-to-date average nearer the BSP’s full-year target range of 3 to 5 percent.

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The BSP’s Monetary Board earlier this month hiked both its policy rates and special deposit account (SDA) yields as officials sought to keep inflation expectations anchored.

The central bank sees inflation averaging at 4.4 percent this year, faster than last year’s 3 percent.

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Concerns over price stability have become more heightened in recent months due to volatility in financial markets and the tightness in supply of key commodities—a result of bad weather and congestion at Manila’s ports. The BSP’s main goal is to protect the peso’s purchasing power by keeping prices stable.

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On Thursday, the peso reached a new five-month low of 44.77-to-$1. The local currency’s recent weakness comes amid the US dollar’s sustained rally as investors make bets ahead of the end of the US Federal Reserve’s monthly bond-buying program next month.

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Tetangco said the effect of the peso’s value on consumer prices was no longer as significant as it used to be. BSP officials earlier said this reflected the improved “efficiency” of the Philippine economy, which allows it to absorb foreign exchange fluctuations more easily.

Earlier in the year, excess levels of liquidity were also a concern for monetary officials. Money supply growth reached a record 37 percent in January following a ban on individual investments being parked in SDA accounts, which resulted in massive withdrawals by banks.

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To stem money supply growth, the BSP ordered banks to set aside more of their clients’ deposits as reserves. SDA rates were also hiked from record low. Both measures were aimed at keeping money parked in bank or BSP vaults.

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TAGS: Amando Tetangco Jr., Bangko Sentral ng Pilipinas (BSP), forecasts, Inflation, Peso, Philippines

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