Think tank says inflation target may be breached if...

If oil and food prices continue to mount in the near term, inflation target set by the Bangko Sentral ng Pilipinas (BSP) may be breached, according to New York-based think tank GlobalSource Partners. In its latest market brief titled “Rate Hike Expected," GlobalSources said inflation target of 3 percent to 5 percent would be exceeded “if second-round effects set in as supply-side pressures continue." The think tank also said the February inflation provides an overview that the full-year average would surpass the forecast set by the Bangko Sentral. February inflation surged to 4.3 percent — fastest in nine months — on rising food and housing cost, National Statistics Office data showed. The country’s inflation target was previously breached in 2008, when consumer price index averaged at 9.3 percent. At the time, the BSP targeted a full-year inflation of 3 percent to 5 percent due to the surge of oil and food prices. Global Source said the policy-setting Monetary Board will likely raise its key rates by 25 basis points during its second meeting this year scheduled on March 24. BSP Gov. Amando Tetangco Jr. signaled a possible rate hike as early as this month, saying that the scope for keeping interest rates steady has narrowed. “A rate hike seems even more likely now, with the central bank governor signaling monetary authorities’ readiness to raise policy rates… [Our] view now is a 25-basis-point hike during the next rate-setting meeting on March 24," Global Source said. The research firm pointed out that the Philippines is one of the countries in the region to normalize its monetary policy since the rates have been put on hold since July 2009. “In our view, there is still a chance this may be put off until early May, but with a growing probability of a larger adjustment which could ruffle markets according to some fund managers we have talked to," Global Source said. The Monetary Board has pegged the overnight borrowing and lending rates at 4 and 6 percent, respectively, since July 2009. — JE, GMA News