May inflation seen at 1.1-1.9%

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) expects inflation to range between 1.1 and 1.9 percent this month on the back of rising food and pump prices of fuel products.

BSP Governor Amando Tetangco Jr. said lower power rates imposed by electricity giant Manila Electric Co. (Meralco) partly offset the increase in domestic oil and food prices.

“Higher domestic oil prices and the uptick in food prices suggest potential upside inflation pressures, which could be partly offset by lower power rates in Meralco-serviced areas,” he said.

Inflation averaged 1.1 percent in the first four months from 2.4 percent in the same period last year. Inflation was steady at 1.1 percent in April as cheaper food prices managed to offset the uptick in utility rates.

Last month’s inflation was also lower compared to the 2.2 percent recorded in April last year.

Inflation eased to 1.4 percent last year from 4.1 percent in 2014 due to stable food prices and cheaper utility rates.

This year, the BSP has set an inflation target of two to four percent. In its latest forecast, the BSP’s sees inflation averaging 2.1 percent this year and 3.1 percent next year.

The country’s gross domestic product (GDP) growth accelerated to 6.9 percent in the first quarter making the Philippines the fastest growing economy in Asia. The expansion eased to 5.9 percent last year from 6.1 percent in 2014 due to weak global growth and lack of government spending.

The robust growth and benign inflation environment have allowed the BSP to keep interest rates steady since September 2014. Last May 12, the BSP kept interest rates unchanged for 13 straight policy-setting meetings since October 2014.

Starting June 3, the rate for the overnight lending facility would be adjusted downwards to 3.5 percent instead of six percent, the overnight reverse repurchase rate to three percent instead of four percent. The rate for the overnight deposit facility was unchanged at 2.5 percent or same as the special deposit account (SDA) rate.

Likewise, the BSP is set to auction P30 billion worth of seven- and 28-day term deposits via the launch of the term deposit auction facility on June 8 as part of the shift in monetary operations to an interest rate corridor system.

The BSP clarified the shift to the IRC system does not represent a change in the BSP’s stance but aims to improve the transmission of monetary policy.

Tetangco earlier said the country’s policy stance remains appropriate at the moment.

“Moving forward, the BSP will remain watchful of economic and financial developments to ensure that its primary mandate of price stability conducive to balanced and sustainable economic growth is achieved,” the BSP chief said.