May inflation likely to quicken over 5% – BSP

The Bangko Sentral ng Pilipinas (BSP) has projected inflation this month may exceed 5 percent, fueled by seasonal purchases in school supplies and the full impact of the P10 taxi fare hike and government’s fuel subsidy for commuter jeepneys and tricycles. BSP Governor Amando Tetangco Jr. revealed in a text message to reporters that the May inflation will be anywhere from 4.5 percent to 5.5 percent. The low end of this inflation range was this year's four-month high posted last April. Tetangco explained that “there continue to be risks of volatilities" despite the recent decline of oil prices in the world market. Strong peso Tetangco also said the continued appreciation of the peso against the US dollar would ease the build up of inflation pressures. The peso’s rise will increase the business sector’s appetite for imports because it will take fewer pesos to buy dollar-priced goods. Peso appreciation can also encourage the private sector and government to invest overseas or reduce their stock of dollar-denominated debt. The BSP earlier said the country’s high levels of overseas remittances and inflows of foreign investments have increased the supply of dollars in the economy that get converted into pesos and in turn fuel consumer spending. "The BSP will continue to monitor developments to ensure that our stance for monetary policy remains appropriate," Tetangco said. The BSP policy rates have risen by total 50 basis points or half a percent to keep inflation in line with its annual target of 3 to 5 percent for the whole year. The overnight borrowing rate is at 4.50 percent while the overnight lending rate is pegged at 6.50 percent. BSP Deputy Governor Diwa Guinigundo said inflation for 2011 would have risen 5.6 percent this year if the Monetary Board did not hike its rates. Higher BSP rates have the effect of reducing money supply, easing inflation pressures. — ELR/VS, GMA News