WASHINGTON: Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. said inflation rate for the month of May could increase to 1.9 percent on higher food and oil prices.
The low-end of the forecast range for May is 1.1 percent which is the same rate in April. According to Tetangco, “the BSP forecast suggests that May inflation could settle within the 1.1 percent to 1.9 percent range. Higher domestic oil prices and the uptick in food prices suggest potential upside inflation pressures which could be partly offset by lower power rates in Meralco-serviced areas.”
In its last Monetary Board policy meeting, the central bank maintained its 2016 and 2017 average forecasts of 2.1 percent for this year and 3.1 percent next year. For the next two years, the inflation target range was two percent to four percent.
The BSP thinks the inflation risks continue to be tilted to the downside with “potential downward price pressures” because of the slow-moving global economic conditions and a possible second-round effects from lower international oil prices. Tetangco said the will remain watchful of economic and financial developments to “ensure that its primary mandate of price stability is conducive to balanced and sustainable economic growth is achieved.”
Most private sector forecasters assessed that the central bank will not move interest rates this year with the implementation of the interest rate corridor system next week. The next policy adjustments is expected in 2017. Nomura Global Economics expects the BSP to “remain on hold” for the rest of the year after adjusting key overnight and deposit rates on June 3 when the IRC is in place.
In a commentary, Nomura said the strong economic performance – and it projects GDP growth of 6.5 percent this year from 5.9 percent in 2015 – will give the BSP leeway to hold off any more rates’ increases. Next year, Nomura estimate at least a 50 basis-point increase in policy rates –“given the strong growth outlook, and inflation picking up.” The IRC system includes enhanced and new policy instruments such as the standing liquidity facilities (overnight lending and overnight deposit), the overnight reverse repurchase or RRP facility and a term deposit auction facility (TDF).
The interest rates for overnight lending facility will be reduced from six percent to 3.5 percent, overnight RRP rate is three percent from four percent, and the overnight deposit facility is 2.5 percent. The TDF is expected to acquire a rate that is estimated to be between the RRP and overnight deposit facility. BSP officials said the IRC will have no significant impact on the current monetary policy and that it will be “policy neutral.” The first TDF auction is on June 8 with an initial volue of P30 billion.
