BSP lowers 2010 inflation forecast to 4%

Inflation forecasts for this year and the next are at their low levels on lower-than-expected inflation rates in May and June, and the continued decline in pump prices of petroleum products, the Bangko Sentral ng Pilipinas said Thursday. The central bank's Monetary Board continued to slash its inflation forecasts to 4 percent from 4.7 percent this year and to 3 percent from 3.6 percent next year. "The latest BSP projections show inflation staying within the target rangers of 4.5 percent plus or minus one percent for 2010 and 4 percent plus or minus one percent for 2011. Recent surveys also show that inflation expectations remain firmly anchored within the inflation targets over the policy horizon," BSP Governor Amando Tetangco Jr. said. "The major reason was the lower-than-expected May and June inflation rates. That is the major contribution to the lowering of the projection for 2010 and 2011," BSP Deputy Gov. Diwa Guinigundo stressed. The National Statistics Office reported that inflation eased to 4.2 percent in the first half of the year from 5 percent in the same period last year. Inflation eased to a seven-month low of 3.9 percent in June from 4.3 percent in May. "Looking ahead, the BSP will continue to closely monitor emerging price pressures and coordinate as necessary with concerned government agencies on possible measures to address supply-side concerns," the BSP chief stressed. 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 the fastest first quarter pace in almost three years after expanding by 7.3 percent from 0.5 percent a year earlier. Meanwhile, Tetangco announced that the Monetary Board approved the shift to a fixed inflation target for the medium term of 3 percent to 5 percent for 2012 to 2014. He pointed out that the shift from a variable annual inflation target has already been approved by the DBCC on July 9. "The fixed medium-term inflation target aims to promote a long-term view on inflation, increase the predictability of monetary policy, help better anchor inflation expectations, and support consumption and investment by fostering greater predictability in economic decisions," Tetangco explained. The medium-term inflation target is appropriate given the consistency of the latest inflation forecasts with the desired inflation path, the private sector's inflation expectations, and growth prospects of the economy, he added. —JE/VS, GMANews.TV