BSP: Room to keep policy stance remains if inflation sustains deceleration

Bangko Sentral ng Pilipinas (Central Bank of the Philippines). Wikipedia photo

MANILA — The Bangko Sentral ng Pilipinas (BSP) on Wednesday reiterated that it continues to have the space to maintain its current policy stance if rate of price increase continue to go down.

This, as the central bank forecasts November 2014 inflation to be within 3.5-4.3 percent.

Last October, rate of price increase decelerated for the second month in a row to 4.3 percent from month-ago’s 4.4 percent after inflation rate of basic commodities continued to go down.

Domestic inflation peaked at 4.9 percent last July and August at 4.9 percent, almost hitting the upper end of the government’s three to five percent target for 2014.

BSP Governor Amando Tetangco Jr. said “stable food prices, continued decline in international oil prices and lower electricity rates for the month are seen to dampen inflation pressures.”

“As I’ve been saying, if, among others, inflation continues on this decelerating trend and if there continue to be no signs of second round effects, then there is room for BSP to pause and keep its current stance of monetary policy,” he said.

”That said, BSP will continue to keep a watchful eye on evolving price and demand trends to ensure price stability,” he added.

During last October’s rate-setting meet of the central bank’s policy-making Monetary Board (MB), it decided to maintain the BSP’s key rates on lower inflation risks and the weaker-than-expected global economic prospects.

To date, the central bank’s overnight borrowing or reverse repurchase (RRP) rate is still at four percent and the overnight lending or repurchase (RP) rate is at six percent.

The key rates were last hiked by 25 basis points in September this year bringing the total hike for this year to 50 basis points, with the first adjustment made last July.

Monetary officials project that inflation risks have lessened, thus, they expect a within-target rate of price increases until 2016.

Last October, the MB lowered its inflation forecasts for the three-year period with this year’s average inflation projection at 4.

4 percent from 4.5 percent previously.

While it is 3.7 percent and 2.8 percent for the succeeding two years. These are lower than the previous projection of 3.8 percent and three percent for 2015 and 2016, respectively.

The government’s inflation target for the two-year period is both between two and four percent.