BSP: A gradual interest rate adjustment for PHL

Any interest rate adjustment to harness inflation in the midst of surging oil and food prices would be gradual, the Bangko Sentral ng Pilipinas said Wednesday. "Our eye is on inflation because of what we have seen in the past several months. Inflation has been picking up and price stability is the primary mandate of BSP," central bank Gov. Amando Tetangco Jr. told members of the Chamber of Thrift Banks during their convention. “We will be watchful of developments and we will take action to make sure that we deliver the price stability objective of the BSP," Tetangco said. The policy-setting Monetary Board will likely adjust its inflation forecast Thursday as inflation, pressured by oil and food prices, accelerates. On Feb. 10, the BSP raised its 2011 inflation forecast to 4.4 percent from 3.6 percent. Analysts, however, are divided on whether the BSP’s Monetary Board will adjust the benchmark rates, which have remained unchanged at record lows since July 2009. Tetangco earlier said the scope for keeping rates has narrowed with the build up of inflation pressures. "The adjustment will depend on our reading of the inflation outlook. So, as much as possible, what we want to do as in the past whenever there is adjustment, it is gradual. And this can be a downward adjustment or an upward adjustment," Tetangco told reporters Wednesday. The yield on overnight lending remains at 4 percent and 6 percent for overnight borrowing. "Tomorrow, we are going to have a policy meeting and all of these factors and developments that are pertinent to inflation outlook will be considered. What we need to do at this point is, given that most of these pressures are coming from the supply side, is to make sure that the inflation expectations are not disanchored," the central bank chief said. Monetary authorities will also review its macroeconomic and monetary targets in light of the developments in the Middle East and North African states as well as in disaster-stricken Japan, he added. — VS, GMA News