BSP says inflationary pressures have eased

Inflationary pressures have eased after prices of goods and services accelerated during the first half, the Bangko Sentral ng Pilipinas said Friday. As such, prices would likely slow down and meet the inflation numbers set by the BSP for this year and next, the central bank said. "Based on our forecast of the inflation path, there could still be some upward pressure on the inflation rate but it is not as strong as we had projected it earlier," BSP Gov. Amando Tetangco Jr. said in an interview with reporters Inflation this year would average 3 percent and 5 percent next year, according to the central bank chief. National Statistics Office (NSO) data showed inflation climbing to a 26-month high of 4.6 percent in June from 4.5 percent in May, prompted by higher electricity rates, tuition fees, prices of food and alcoholic beverages and tobacco. Core inflation, which excludes food and fuel items, registered at 4.0 percent in June from 3.7 percent in May. Inflation last month was the highest since April 2009 when average inflation was at 4.8 percent. "So for the year as a whole, the forecast inflation rate is somewhat lower than what we had projected last month or [in] the previous meeting of the Monetary Board," Tetangco said. The policy-setting Monetary Board will hold its next meeting July 28. ING predicts steady interest rates With inflation now expected to slow down, Dutch banking giant ING sees the BSP keeping interest rates steady. "We are at the end-phase of any rate hike. The BSP would continue to hold monetary policy steady," ING senior economist Joey Cuyegkeng told reporters in a Mid-year Economic Briefing on Friday. Higher reserve requirement However, the BSP would likely raise the reserve requirement ratio of banks by 1 percentage point to 21 percent from 20 percent come July 28, Cuyegkeng said. "There is going to be a pause for next week but a reserve requirement hike is possible," he added. For inflation, ING sees 4.7 percent on average this year and 4.6 percent next year — still within the 3.0 percent to 5.0 percent BSP target. However, Cuyegkeng noted the possibility that inflation would breach the higher end of the BSP target in the third quarter and peak at 5.2 percent. ING expects a more definite slow down in prices by the fourth quarter of 2011 or the first quarter of 2012. To keep prices from spiraling higher, Cuyegkeng said the Monetary Board would likely raise policy rates by another 25 basis points in the third quarter. This would bring the overnight borrowing rate to 4.75 percent and the overnight lending rate to 6.75 percent. The build up in inflation pressures earlier in the year — spurred by higher oil and commodity prices in the world market — prompted the Monetary Board to raise interest rates by 25 basis points on March 24 and by another 25 basis points on May 5. The rate increases brought the overnight borrowing rate to 4.50 percent and the overnight lending rate to 6.50 percent. — VS, GMA News