SOUNDING hawkish after affirming that inflation might have spiked near the 5 percent ceiling of the 2014 forecast range just halfway through the year, as predicted late last week by analysts quoted by The Manila Times, the central bank said it is ready to adjust one of its anti-inflation measures to avert any further upward pressures on consumer prices.
“The forecast for June inflation is a range of 4.1 to 5 percent,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said in a text message to reporters at the weekend.
The BSP provides regular monthly forecast bands for inflation besides a projected range for the year, which for full-year 2014 was set at 3 to 5 percent.
Tetangco said the BSP will continue to be watchful of domestic factors as well as external developments that could fuel second-round effects and fan any financial stability pressures.
“We will continue to mark developments to see which policy lever would be adjusted, if any is needed, so as to ensure our goals and price and financial stability remain within view,” he said.
The Times reported on Friday that consumer prices were seen almost certain to hit the upper boundary of the government’s 3 to 5 percent target band for the year despite central bank reassurances that recent increases in food and transport costs were due to temporary rather than systemic factors.
A number of analysts surveyed by the Times had forecast that inflation in the third quarter would be near the 5 percent upper limit set for this year, largely driven by those food price pressures.
The BSP’s Monetary Board over the last three consecutive monetary policy meetings has made adjustments to two of it policy levers to curb growth in money supply as a means to tame inflation and maintain stability in the financial system.
The Board decided at its March 27 meeting to raise the reserve requirement ratio for banks to 19 percent, then further to 20 percent at its May 8 meeting in a bid to siphon off excess liquidity from the financial system.
On June 19, the policy-setting body kept its key rate unchanged but increased the rate on the special deposit account facility by 25 basis points to 2.25 percent.
Explaining the June inflation forecast, Tetangco said the figure reflects a combination of increases in the prices of certain commodities, such as rice, school tuition fees and provisional fare hikes.
But he added that the upward pressures may still be offset by possible downward adjustments to electricity rates and a relatively stronger peso during the month.
Tetangco again reassured the public that over the policy horizon, inflation should still be within the 3- to 5-percent target, “albeit closer to the upper band.”
Following the higher-than-expected inflation result in May, which came in at 4.5 percent, the BSP in its June 19 policy meeting revised its full-year average inflation projection for 2014 upward to 4.4 percent from 4.3 percent, taking into consideration possible weather conditions that could push food prices even higher later in the year, and several pending petitions for upward adjustments in power rates.
The BSP has taken note of concerns over possible systemic factors, or second-round effects—which are cyclical increases in wages and prices caused by a higher-than-expected inflation rate—that may be happening in the wake of the May inflation print, but it said such factors have so far been not evident.