Perked up by peso, BSP sees inflation slowing down

PERKED UP by a strengthening peso, the Bangko Sentral ng Pilipinas now expects inflation for the full year to settle at a pace slower than its previous estimate.

Before, the BSP projected inflation for the full year to average at or near 5 percent—the ceiling of the official range of 3 to 5 percent.

But according to BSP Governor Amando Tetangco Jr., inflationary pressures, while remaining significant, are manifesting signs of a slowdown.

“There could still be some upward pressures … but it is not as strong as projected earlier. For the year, the forecast inflation … is somewhat slower than what we had projected in the previous meeting of the Monetary Board,” Tetangco told reporters.

Inflationary pressures are said to be easing due largely to the appreciation of the peso. On Thursday, the peso closed at an eight-month high of 42.62 against the US dollar on the back of a sustained surge in foreign portfolio investments into the country.

The strong inflow of foreign capital is attributed to favorable growth projections for the Philippines and other emerging markets in Asia.

Central bank data showed that in the first six months of the year, net inflows of foreign portfolio investments amounted to $2.36 billion, up by 243 percent from $687 million in the same period last year.

According to economists, foreign portfolio investors are turning to Asian economies in increasing numbers because of their strong performances, while the United States and countries in the Euro zone are facing serious debt issues. This development has led to a rise of most Asian currencies.

The appreciation of the peso is helping reduce the cost of imported goods, thereby tempering overall inflation in the country.

Latest inflation data from the National Statistics office showed that inflation stood at 4.3 percent in the first half of the year, still within the government cap for the year. Still, the figure was faster than last year’s average of 3.8 percent.

Economists said that with the peso’s appreciation, inflation could decelerate in the second half of the year, unlike that reported in the first half.

“The peso is rising due to substantial inflows. These inflows are affecting the movement not only of the peso but also of other currencies in the region,” Tetangco said.

Since the start of the year, the BSP has already raised key interest rates by a total of 50 basis points. It also increased the reserve requirement by a percentage point. Both moves were meant to temper inflation amid price pressures reported earlier in the year.

The BSP said these monetary actions, on top of the rising peso, would likewise help tame the rate of rise in consumer prices.