BSP sees August inflation between 3.6% - 4.5%, still within target

The central bank on Friday said it sees the inflation in August to range between 3.6 and 4.5 percent amid the stronger-than-expected growth in the country's gross domestic product (GDP) during the first half of the year. "August inflation is forecast to fall within the range of 3.6 to 4.5 percent, which puts the full-year average forecast still within target for 2010. This also implies an inflation trajectory for the rest of the policy horizon that is manageable," Bangko Sentral ng Pilipinas (BSP) Gov. Amando Tetangco Jr. said. Monetary authorities forecast the inflation for the full-year of this year to reach between 3.5 percent and 5.5 percent. Tetangco said statistics showed that inflation in July was steady at 3.9 percent, bringing the average inflation rate at 4.2 percent in the first seven months of 2010. He said the benign inflation gave monetary authorities more flexibility to keep its key policy rates unchanged at record levels for 10 consecutive Monetary Board meetings. The Monetary Board cut its key policy rates by 200 basis points between December 2008 and July 2009. This brought the the overnight borrowing rate to a record low of 4 percent and the overnight lending rate at 6 percent. The BSP opted to maintain this year's inflation forecast at 4 percent but raised next year's forecast to 3.25 percent from 3 percent. It increased next year's inflation target as the expansion of the Philippine economy continues, oil prices go up, increase of electricity rates and MRT-LRT fares await, and imposition of 12-percent value-added tax is pending. The BSP sees inflation averaging at 2.97 percent by 2012. The central bank has set an inflation target of 3 percent to 5 percent between 2011 and 2014. Tetangco earlier said the stronger-than-expected GDP growth of 7.9 percent in the second quarter would not result to a significant increase of inflation in 2010 and 2011. "The higher-than-expected GDP growth is not expected to cause a significant increase in inflation in 2010 and 2011. Our forecasts still indicate a well-within-target inflation for these two years," Tetangco said. The inflation profile, he said, remained favorable as shown by current inflation trends, the inflation outlook, and the public's expectations about inflation. —JE/OMG, GMANews.TV