2014 INFLATION FORECAST LOWERED

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The Bangko Sentral ng Pilipinas (bsp) has lowered its inflation forecast for 2014 to 4.3 percent on the account of the delay on the implementation of the power rate hikes and food prices.

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“Based on the information available as well as the actual [inflation]rate in January, we are coming out with new forecast with 4.3 percent from the 4.5 percent [previous forecast], and 3.3 percent or slightly higher compared the 3.3 percent [previous]forecast for 2015,” BSP Deputy Governor Diwa Guinigundo said in a press briefing on Thursday.

Guinigundo noted that the central bank has incorporated the delay in the implementation of the power rate adjustment of the Manila Electric Co.

Upon the approval by the Energy Regulatory Commission, the power distribution utility was supposed to collect in three tranches the higher transmission charges in December and in February and March this year, but a 60-day temporary restraining order (TRO) issued by the Supreme Court deferred the implementation of the December 2013 electricity rate hike.

However, the BSP has noted that pending petitions for adjustments in utility rates remains a risk to the inflation outlook.

“We also consider that [the TRO]can be a risk in the upside. We are open to the possibility that Supreme Court might lift the TRO, and in that case, it will have an effect in the forecast for 2014 and 2015,” Guinigundo said.

“We did not include in the present forecast the possibility that the TRO is going to be lifted by the Supreme Court, but we identified it as one of the risks,” he added.

Guinigundo explained that if the lifting of the TRO is considered by the BSP, inflation may increase by about 15 basis points (bps) in 2014 and about 0.7 percent in 2015, noting that there is a 50-percent probability that the High Tribunal will lift the TRO.

“The 4.3 percent will have to be adjusted upward by about 4.15 percent. This is conditional on the 50 percent probability that the Supreme Court will lift the TRO,” he said.

Guinigundo noted that the implementation of the power rate adjustments will be implemented on a staggered basis. Given that basis, there will be a 15 bps adjustment in the inflation rate.

Furthermore, he said that the BSP is also monitoring food prices as it may pose another risk to inflation.

“The other issue is the food prices. In the first two months of 2014, we’ve seen a series of natural calamities with damage on properties, lives and crops. It is something that we are monitoring. The possibility of the impact on food prices should also be considered in the assessment of future inflation,” the BSP official added.

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