In BSP poll, inflation seen to ease this year

Inflation projections eased in the third quarter as the grim outlook on the global economy served to dampen even domestic demand for goods and services this year.

Based on a survey conducted by the Bangko Sentral ng Pilipinas in the third quarter, inflation is projected to average at 4.5 percent this year. This figure is better than the 4.7 percent seen in a similar survey conducted by the BSP in the second quarter.

Economists from the private sector served as respondents.

For next year, inflation is projected to settle at 4.3 percent, the survey also showed.

Inflation forecasts for 2011 and 2012 are well within the government’s target range of 3 to 5 percent. Monetary officials described the level as healthy enough for business without burdening consumers.

Respondents “noted that the recent easing of global commodity prices, as well as expectations of slower global economic growth due to the eurozone’s continuing debt crisis and the weak US economy, would dampen inflationary pressures going forward,” the central bank said in its latest inflation report.

The economic problems in the United States and Europe have led to a decline in Filipino exporters’ earnings. In turn, income grew by a much slower pace.

Economists said this would temper the increase in demand for goods and services as well. Consequently, inflation is expected to decelerate.

In the first half of the year, the Philippine economy grew by 4 percent. Economists said the growth was still decent compared with other, more advanced economies, but it was a sharp decline from the over 8 percent registered in the same period last year.

The BSP decided to forego raising key interest rates because inflation projections had eased.

In the first half of the year, the BSP raised its key policy rates twice for a total of 50 basis points. This brought the central bank’s overnight borrowing and lending rates at 4.5 and 6.5 percent, respectively.

The move was meant to tame inflationary pressures seen earlier this year.

However, the BSP did not follow through on the rate hikes it carried out in the first half of 2011.

The BSP said the slowdown of the domestic economy in the first semester showed that the concern had shifted from inflation to economic growth.

The BSP said keeping the rates steady at 4.5 and 6.5 percent should support efforts at accelerating growth of the economy.

The government expects the economy to grow between 4.5 and 5.5 percent this year.

This target was revised from the original range of 5 to 6 percent.

The cut in the growth target is attributed to the prolonged crisis in Europe and the anemic performance of the US economy, which could further dampen the Philippines’ export earnings.