The central bank will review its inflation targets for the year and also for 2012, following a lower-than-expected growth of the economy for the first quarter.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told reporters the revision was necessary to determine if there’s a need to increase its policy rates when the Monetary Board (MB) meets on Thursday. The MB is the policymaking body of the BSP.

“We will come up with a revised forecast [on inflation expectation] for the year and for next year,” Tetangco told reporters on Friday.

Analysts are expecting the central bank to raise its policy rates by at least 25 basis points as inflation, the measure of the increases in the price of basic goods and commodities, continued to rise during the past few months.

The BSP expects the country’s inflation to hit above 5 percent during the second or third quarter this year before going down in 2012.

It is targeting an average inflation rate of between 3 percent and 5 percent for 2011 and 2012, but that may be breached, if actions were not made.  “We will look at the inflation outlook and inflation expectations, and then make a judgment on whether or not there’s a need for a further action. In doing that, we will look at the options that are available,” Tetangco said.

The BSP has been vocal on its stand that pressures still exist since inflation in May increased to 4.5 percent—slightly lower than what analysts had expected—from the previous month’s 4.3 percent, and, therefore, a rate increase was necessary. Core inflation, which strips off goods, such as petroleum and food, continues to increase month on month.

“In the past, we assess the effects of any policy actions that we have taken so far, and then update our inflation forecast,” Tetangco said.

In May the BSP increased the interest rates by another 25 basis points as a result of the increasing prices of basic commodities. The adjustments raised overnight borrowing rate at 4.5 percent and overnight lending rate to 6.5 percent. The adjustment was done to prevent inflation from hitting an average of 5.6 percent this year and to 4.16 percent next year, if the BSP decided to leave the policy rates unchanged.

“The revised inflation [figures] is to incorporate the actual inflation in May and also to factor in the new assumptions on oil prices because oil prices have changed and you also have a lower GDP [gross domestic product] growth,” Tetangco said.

Meanwhile, Finance Secretary Cesar Purisima said on Sunday the government believes it can “hit comfortably” a 5-percent growth this year, but will continue to strive to attain its “aspirational” goal of 7- percent to 8-percent growth.

Asked whether the government has no plan to change its growth target, Purisima revealed that “the assumptions were all based on 5 percent, which we know we will hit comfortably.”

This means that for purposes of crafting the 2011 budget, the government had pegged GDP growth at 5 percent to 6 percent, but set its goal higher.

Purisima said “to be able fulfill the goal of really reducing poverty, improving people’s lives, improving our per capita, I think we should target 7 percent to 8 percent, and we can do that.”

“We have so many low-hanging opportunities’ tourism, BPO is very strong, even agriculture was quite strong and if we build the infrastructure there, that will hopefully be more sustainable,” he said.

Socioeconomic Planning Secretary Cayetano Paderanga, who was also at the Palace event, said the government “hopes” that GDP growth this year would be higher than 5 percent. He said in striving to attain its growth target, the government will look at “stable and robust” policies. “We don’t want to sacrifice our medium- and longer-term objectives just to have short-term benefits,” he said.

Asked about the possibility that the government might have gone back to deficit in May, after posting a record surplus of P61 million in the first four months of the year, Purisima said what is important is attaining a deficit that is 3.2 percent of the GDP.

“The issue really is not whether we’re in deficit or not [but] whether we’re on target to hit our 3.2-percent target fiscal deficit. In fact, I’m very confident that will be the upper limit. Our thrust is to make sure whatever fiscal space we have will be used to spend on infrastructure and social services,” he said.

Purisima also said the revenue numbers are “good.”

“We’re ahead of the growth rate of the economy, which is very important. Because that means the revenue to GDP is growing, so I’m happy. I’m sure there’s a lot more room for improvement but we’ll take it one step at a time,” he said. --Mia Gonzalez, VG Cabuag