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PEOPLE
take it for granted that inflation in 2007 averaged much
lower than target at 2.8 percent and hardly anyone
realized this was in part because of the adoption of the
reformed value-added tax (R-VAT) one year earlier.
The Bangko Sentral ng Pilipinas stressed
this point in a letter to Malacañang explaining why
inflation, seen to range from 4 percent to 5 percent
last year, improved beyond original assessment.
BSP Governor Amando M. Tetangco Jr.
looked back when he reported on price developments last
year and confidently forecasts only moderate increases
this time around when inflation is seen ranging from 3
percent to only 5 percent.
“With the 2-percent adjustment of the
R-VAT in February 2006, the fiscal balance bounced back
and reversed the negative sentiment resulting in
significant capital flows and peso appreciation,”
Tetangco said of the importance of the tax that some
legislators wanted scrapped or suspended.
He meant the drastic reduction of the
deficit to only P63 billion in 2006 from P146.5 billion
the year before.
But its positive impact did not stop
with the public sector as risk-sensitive foreign flows
surged inward, allowing the peso to firm up to P51.31
per dollar in 2006 from P55.1 in 2005.
The peso firmed up by another 19 percent
last year to P46.14 per dollar.
“As a result, the benign inflation
outlook and limited demand-side pressures provided scope
for monetary policy easing in the second half of 2007,”
Tetangco said.
Favorable inflation readings allowed the
BSP to cut its policy rates four times last year by a
total 225 basis points for borrowing and 250 basis
points for lending, lifting the growth potential as the
cost of funds dropped consequently.
Tetangco said they correctly anticipated
inflation to moderate in 2007 even though price and
monetary conditions at the time they made it two years
earlier were anything but certain.
Inflation in 2005 averaged 7.6 percent,
the local unit was at P55.1 per dollar and 7.4 percent
of Filipinos were unable to find employment.
Looking forward, Tetangco forecasts this
year’s inflation to be within 4 percent plus or minus
one percentage point, with the rate next year likely
falling within 3.5 percent plus or minus one percentage
point.
The BSP failed to contain inflation to
within the 4-percent to 5-percent target last year as
the actual average stood at 6.2 percent. --J.
Vallecera |
