BSP sees no danger from inflation front

Customers buy vegetables in Manila’s farmers market in this file photo. The Bangko Sentral ng Pilipinas still expects inflation to remain moderate in 2013 and 2014. AFP PHOTO/JAY DIRECTO

MANILA, Philippines—The Bangko Sentral ng Pilipinas still expects inflation to remain moderate over the next two years, enabling monetary officials to implement policies that will support economic growth.

BSP Deputy Governor Juan de Zuñiga on Friday said that inflation for this year and the next two years could stay at the lower end of the official target of 3 to 5 percent.

“Inflation is projected to stay within the lower half of the 3 to 5 percent range. This gives room for additional policy support to keep the domestic economy growing amid external headwinds,” De Zuñiga said during a briefing on inflation developments attended by economists and analysts.

According to the central bank’s latest estimates, inflation is likely to average at 3.2 percent this year, 3.9 percent next year, and 3.1 percent in 2014.

Given these projections, the BSP will have a free hand to implement measures that will boost demand should the need for such measures arise again in the future.

For instance, the BSP, for the fourth time, reduced its key policy rates by a total of 100 basis points.

The rate cut is expected to boost domestic demand for bank loans and help fuel more consumption and investments.

The BSP’s key policy rates, which influence commercial interest rates, now stand at historic lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending.

According to the BSP official, there is a need to boost domestic demand to ensure that the Philippine economy maintains a respectable growth rate even as exports decline due to weakened demand from crisis-stricken markets, particularly those in the euro zone.

Because it tends to boost consumption, any cut in the interest rates may accelerate inflation.

Even so, the BSP does not believe that the reduction in key rates will not necessarily lead to a breach in the government’s inflation target, citing the latest actual inflation figures which remain soft.

The BSP expects the same situation in the next two years as the crisis abroad tempers demand and prices for certain imported items.

The decline in the cost of some imports will also help temper overall inflation in the domestic economy, the regulator added.

“Barring unexpected shocks, we continue to see soft, tame inflation,” BSP Assistant Governor Ma. Cyd Tuaño-Amador told reporters after the inflation briefing.

Latest data on consumer prices from the National Statistics Office showed that inflation stood at 3.1 percent in October and averaged 3.2 percent in the first 10 months of the year.