• BSP warns inflation leaves little room to keep rates steady


    The central bank warned that inflation continues to face upside risks despite the easing seen over the last two months, leaving little room for monetary authorities to keep key policy rates steady.

    Calling attention to the presence of strong domestic liquidity and credit growth that could heighten financial stability risks, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said such factors had been an important consideration in the BSP’s pre-emptive move to raise the reserve requirement ratio for banks that took effect April 4.

    In an email to reporters on Wednesday, Tetangco said: “Inflation has slowed over the last two months. However, the upside risks to inflation that we have mentioned before still remain.”

    Data shows that inflation has slowed to 4.1 percent in February and 3.9 percent in March.

    But Tetangco pointed out that potential price pressures that could emanate from expected increases in power rates, higher food prices and potential volatility in oil prices remain present.

    Uncertainty as to when supply-side pressures will dissipate also highlights the potential risk of second-round effects, he added.

    “As I have said before, we continue to see inflation staying within our target range over the policy horizon, but given that the full year average is expected to be slightly above the midpoint of our target ranges, and that we have a lower target range for 2015, the room to keep rates steady is narrower,” he said.

    The BSP has said the future path of inflation is likely to stay within the target ranges of 3 percent to 5 percent for 2014 and 2 percent to 4 percent for 2015. The central bank has also lowered its inflation forecast for this year to 4.2 percent from a previous projection of 4.3 percent.

    “Clearly, while we see inflation falling within the target range this year and next, there are additional challenges to our operating environment this year relative to last year,” the bank said.

    In a March 27 monetary policy meeting, the Monetary Board of the central bank indicated a bias toward policy tightening by raising the reserve requirement ratio (RRR) for commercial banks by 1 percentage point to 19 percent, which took effect starting April 4.


    Please follow our commenting guidelines.

    Comments are closed.