BSP affirms policy after inflation eases

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April headline inflation at 2.2% slowest in 20 months

The central bank affirmed its monetary policy stance after reporting headline inflation hit its slowest pace in 20 months in April at 2.2 percent, well within its forecast range.
The April rate reflects further declines in fuel costs, which weighed on housing, transport, communications and utility rates.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. stressed the figures for April show that the BSP’s current policy stance based on its outlook of manageable inflation remains appropriate.

“We will, nevertheless, remain watchful of developments, especially the Fed actions and global market interpretations of such actions, how the interaction of these two factors are absorbed by our own financial markets and how domestic economic agents use these to shape their inflation expectations,” he said.

Slowest pace in 20 months
Growth in April consumer prices slowed from 2.4 percent in March and 4.1 percent in the year-earlier period. It was the slowest rise since August 2013, when inflation slackened to 2.1 percent.


The fourth month’s headline inflation ran within the central bank’s target range of between 1.9 percent and 2.8 percent. It fell below analysts’ estimates of between 2.3 percent and 2.9 percent.

Data from the Philippine Statistics Authority (PSA) released Tuesday showed core inflation, which excludes volatile food and energy prices, edged down to 2.5 percent in April from 2.7 percent in March, and from 2.9 percent recorded a year earlier. Core inflation from January to April averaged 2.5 percent.

Including those prices, headline inflation in April brought the year-to-date average to 2.3 percent. For full-year 2015, the central bank has set a target range of 2.0 percent to 4.0 percent.

Annual declines were recorded in the indices for housing, water, electricity, gas and other fuels; while annual growth eased in transport and communications, food and non-alcoholic beverages; clothing and footwear; health; and restaurant and miscellaneous goods and services.

Not joining the easing bandwagon
UK-based investment bank Barclays sees the BSP looking comfortable in its policy stance but unlikely to ease its position given the economy’s still robust growth.

“Although low inflation provides room to keep policy on hold, growth remains robust, making it unlikely that the BSP will join other central banks in the region in easing policy in its next meeting on 14 May, in our view,” Barclays said.

Peso seen stable
The National Economic and Development Authority (NEDA) cited the country’s steady external payments balance, which it said will help ensure the stability of the peso and consumer prices.

“The peso is expected to remain relatively stable given the country’s strong external position owing to strong remittances and foreign direct investment inflows, ample international reserves and a manageable level of external debt, NEDA Officer in Charge and Deputy Director General Emmanuel Esguerra said.

“Overall, these conditions are seen contributing to stable domestic prices going forward,” he said.

Still wary of risks
Although acknowledging a 2.3 percent average inflation rate for January to April bodes well for consumption growth, the national economic planning body warned of risks that could still fuel inflation.

Esguerra called for close monitoring of the impact of the El Nino phenomenon on agriculture, readiness to boost rice imports if and when needed, ports decongestion for smooth transport of goods throughout the country and facilitation of credit.

“Regular monitoring of drought incidence in agricultural areas should be continued to ensure that appropriate policy actions are implemented without delay, he said.

The NEDA noted that the timely importation of rice to augment domestic supply should serve as a ready measure to prevent a repeat of high rice prices, which weighed on consumers in the third quarter of 2013 until 2014.

Esguerra also emphasized that it is, likewise, critical for the government to continue exploring a long-term solution to the traffic congestion in Metro Manila that disrupts the domestic supply chain.

He also stressed the need to actively promote higher productivity in agriculture and the food processing industries.

“There should be programs to cover the use of appropriate technology to expand production capacity as well as intensification of credit programs and facilities with crop insurance,” Esguerra added.

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