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DEPRECIATION of the peso against the US dollar may
have pushed inflation to break a 10-year high mark last month, the
Bangko Sentral ng Pilipinas (BSP) said Monday.
Deputy Gov. Armando L. Suratos,
who serves as acting BSP governor, said June inflation may fall
within the range of 10.4 percent to 11.2 percent on the back of
surging world oil prices, causing domestic pump prices to climb,
which has triggered wage and cost of living allowance (COLA)
adjustments.
Suratos also said that increases
in the prices of rice, fruits and vegetables bolstered central
bank’s expectations of higher inflation last month.
“Higher cost of imported
commodities due to depreciating peso,” Suratos told reporters in a
text message.
At the Philippine Dealing System,
the peso closed at 44.90 against the US dollar Monday from the
previous finish of 44.79. Total volume traded reached $504.5
million, lower than Friday’s $608 million.
Traders said the peso fell to an
eight-month low as investors fretted about the impact of high oil
prices on the country’s economy.
BSP Gov. Amando M. Tetangco Jr.
earlier said that the peso’s rapid depreciation may have added
pressure on consumer prices.
The peso has suffered decline
against the dollar due to concerns over rising oil prices.
“As I have said before, we will
remain vigilant and act preemptively one we see signs that our
inflation outlook for 2009 is at risk and inflation expectation are
being disanchored,” Tetangco said.
Price increases in May
accelerated to a nine-year high of 9.6 percent, which prompted the
central bank to revise its full-year forecast to 7 percent to 9
percent, higher than the target of 3 percent to 5 percent.
Development Bank of Singapore
(DBS) said Philippine inflation will peak at above 11 percent year
on year in September or October, pushing up this year’s average
rate to 9 percent.
The Singaporean bank’s
projection for the coming months runs counter to an earlier claim of
BSP that inflation would peak at 11 percent this month and
decelerate in July.
Lim Su Sian, DBS economist, said
real private consumption expenditure growth may slip to 5.4 percent
before returning next year to 5.8 percent, the same expansion seen
last year.
The BSP had released a survey
showing that pessimism will run deep among consumers for the rest of
the year due to rising fuel and food prices.
In its Consumer Expectation
Survey, the BSP said the overall consumer confidence index dropped
to minus 43.8 percent in the second quarter, easing to minus 26.9
percent in the third quarter and to minus 20.3 percent in the next
12 months.
As base-year effects wear-off
next year, and assuming some stability in energy prices, inflation
should ease to 4.8 percent, Su said. This is still well above the
BSP’s inflation target of 2.5 percent to 4.5 percent in 2009.
“We expect the central bank to
continue the tightening cycle it embarked on earlier this month. The
overnight reverse repo [borrowing] and the repo [lending] rates were
lifted 25 basis points to 5.25 percent to 7.25 percent,
respectively, and we expect a further 75 basis points of tightening
before the year is up, to be delivered in three moderate steps of 25
basis points each,” the DBS economist said.
These interest rate hikes should
help to contain risks of a wage-price spiral that may be triggered
by a slowing economy, she said.
The policy-making Monetary Board
hiked its key policy rates by 25 basis points, hinting of similar
actions in the future should prices continue to appreciate.
After the BSP raised its
inflation forecast, Tetangco said the increase in oil prices will
moderate in the second half of the year even as food prices have
stabilized.
He said inflation could reach 11
percent in June before dropping continuously starting July.
In an earlier report, DBS said
higher oil prices will hurt the Philippines’ fiscal position and
current account surplus.
--Chino S. Leyco
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