Supported by well-anchored expectations, the Bangko Sentral ng Pilipinas’ (BSP) inflation outlook this year remains in line with the 3-percent to 5-percent target range, according to BSP’s latest Inflation Report.
“Results of the BSP’s latest forecasting exercises showed that the full-year average forecast for 2013 and 2014 could fall within the lower half of the 3 [-percent] to 5-percent target range for both years,” it stated.
The report added that risks to the inflation outlook is also considered to be “broadly balanced.”
Downside risks mentioned in the Inflation Report include uncertainty over the strength of the global economy and its effects on global commodity prices, particularly oil; and peso appreciation that could affect imported inflation.
“Meanwhile, additional petitions for electricity rates adjustments, particularly in Mindanao and string surge in liquidity due to continued foreign exchange inflows constitute the upside risks to inflation,” it continued.
On the other hand, the report emphasized that prevailing and expected conditions for inflation and output thus support the case for maintaining the BSP’s policy interest rates at their current levels.
In April, the Monetary Board decided to maintain the central bank’s key policy rates at 3.5 percent for the overnight borrowing reverse repurchase facility, and 5.5 percent for the overnight lending or repurchase facility.
The Inflation Report also noted that the benign inflation outlook and improving growth prospects also provide BSP the scope to rationalize further its special deposit accounts facility—reduced by 50 basis points to 2 percent across all tenors—to enhance the operational capacity and resiliency of the central bank’s monetary policy operations in the middle of the continued surge in foreign exchange inflow.
“The recent efforts to fine-tune the array of monetary policy instruments are aimed at ensuring their effectiveness in promoting the BSP’s price and financial stability objectives, which are important in helping sustain the country’s economic gains,” it added.
Mayvelin U. Caraballo