INFLATION was seen moderating over the next 18 to 24 months—enough to warrant a scaledown in forecast inflation to only 4.4 percent this year from 4.5 percent when this was first projected in September—the Bangko Sentral ng Pilipinas (BSP) said on Thursday.
Forecast inflation for next year and in 2016 was also scaled down even lower to 3.7 percent from 3.8 percent, and to 2.8 percent from 3.0 percent, respectively.
The moderating inflation outlook allowed the monetary authorities to pause and refrain from changing the current monetary settings for the second time this year and in this manner ensure the target growth, measured as the gross domestic product (GDP), is attained.
“Latest forecasts show a lower inflation path for 2014 to 2016, reflecting easing pressures on commodity prices,” BSP Governor Amando M. Tetangco Jr. said.
Tetangco said the risks to the inflation outlook are now “broadly balanced” and compares more favorably against an earlier assessment in which the risk to inflation was “skewed toward the upside.” He said potential price pressures coming from pending petitions for adjustments in utility rates and possible price shortages will be mitigated by the uneven growth of those countries to which the Philippines has significant trade and investment relations, such as the United States, Japan, China and countries under the European Union. All forecasts fall within the targets for their respective years of 3 percent to 5 percent for 2014, and 2 percent to 4 percent for 2015
and 2016.
“Given these considerations, the Monetary Board considered it prudent for the time being to allow previous monetary responses to continue to work their way through the economy,” Tetangco said. As a direct consequence, the Monetary Board kept the rate at which it borrows from or lends to banks at 4 percent and 6 percent, respectively.
Prior to this, and starting from March to September, the central bank put in place a number of tightening measures to moderate price pressures and boost the potential for continued economic expansion.
The central bank implemented a 50-basis-point hike in the special deposit rate, a 2-percentage-point hike in the banks’ deposit reserves and a 50-basis-point increase in overnight policy rates earlier this year. The Monetary Board also kept the interest rates on term, the special deposit account, as well as the level of reserve requirement rate, untouched.