BSP cuts 2010 inflation forecast to 4.7 percent

The Bangko Sentral ng Pilipinas (BSP) cut its inflation forecast from 5.1 percent to to 4.7 percent this year and and from 3.7 percent to 3.6 percent next year. BSP Deputy Gov. Diwa Guinigundo told reporters that the central bank's Monetary Board decided to lower its inflation forecast in light of its latest assessment that took note of lower energy costs and oil prices, stable commodity prices, moderate liquidity growth, and stronger peso. More than a month ago, the Monetary Board decided to raise its inflation forecast to 5.1 percent instead of 4.64 percent this year and 3.7 percent instead of 3.45 percent next year after taking into consideration a possible wage increase and a transport fare hike. "Over the last few months, liquidity growth has started to moderate. It does not mean that liquidity growth is difficult. It continues to be ample but the growth has decelerated due to the withdrawal of liquidity-enhancing measures," Guinigundo explained. Latest data showed that money supply or domestic liquidity posted a double-digit growth of 10.3 percent to P3.894 trillion as of end-March from P3.53 trillion in the same period last year. When the economy is booming and money supply is expanding rapidly, the central bank would normally step in to mop-up excess money order to kee inflation from surging. He also cited the stronger peso this year compared to that of last year. The peso, however, weakened breaching the P47 to $1 during the height of the debt crisis in Europe. "The more benign inflation outlook gives us more flexibility to keep our rates unchanged," he added. For his part, BSP Governor Amando Tetangco Jr. said the latest BSP projections show headline inflation averaging within the target of 3.5 percent to 5.5 percent this year and 3 percent to 5 percent next year. "These projections are slightly lower compared to those of the previous policy meeting as a result of lower energy prices and slower domestic liquidity growth," Tetangco said. Latest data from the National Statistics Office (NSO) showed that inflation eased to 4.3 percent in the first four months of the year from 6.4 percent in the same period last year. The BSP sees inflation ranging from 4.2 percent to 5.1 percent in May from 4.4 percent in April. The latest inflation forecast also took into consideration the stronger-than-expected gross domestic product (GDP) growth registered in the first quarter of the year. The country's GDP zoomed to its fastest pace in almost three years after expanding by 7.3 percent in the first quarter of the year from only 0.5 percent in the same quarter last year. —OMG, GMANews.TV