Wary of inflation, BSP stands ready to reset key policy rates

Categories: Business Updates

Date: 31 Jul 2014

Monetary authorities are closely watching how the rise in food and power costs and the easing of fuel pump prices will affect inflation.
Members of the Bangko Sentral ng Pilipinas’ Monetary Board will sit down Thursday to decide on the monetary policy.

“Whatever happens with inflation in the short term will not affect [Thursday’s] decision,” BPI analyst Nicolas Mapa said in an interview. “If they see inflation trending higher, and they have said it, they will not hesitate to react preemptively.”

In a statement on Wednesday, the BSP said it expected inflation to fall within the range of 4.1 to 4.9 percent for July, coming from 4.4 percent in June.

BSP Governor Amando M. Tetangco Jr. said that, on one hand, the forecast incorporated the potential impact of higher rice prices and electricity. On the other hand, he said, prices of other food commodities fell during the month. Fuel was also cheaper as international prices declined.

Tetangco was hawkish on Wednesday, saying the BSP would continue to monitor prices as it sought to establish a steadier trend for prices.

“The BSP stands ready to implement policies to keep inflation expectations well-anchored and protect the government’s inflation targets,” Tetangco said.

The BSP’s benchmark overnight borrowing and lending rates have stood at record lows of 3.5 and 5.5 percent, respectively, since October 2012.

This year, the BSP sees inflation averaging at 4.7 percent, higher than last year’s 3 percent and near the top end of the state’s target of 3 to 5 percent. Next year, inflation will likely average at 3.4 percent, which is also above the midpoint of the 2 to 4 percent target range.

In a report earlier this week, Singapore’s DBS bank said it expected the BSP to keep interest rates steady. Authorities are expected to instead opt for another hike in special deposit account (SDA) rates to encourage more banks to park more of their cash with the BSP.
Written by: Paolo G. Montecillo


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