BSP sees April inflation at 3.7%-4.7%

MANILA, Philippines - The Bangko Sental ng Pilipinas (BSP) sees inflation this month averaging between 3.7 percent and 4.7 percent amid the escalating prices of oil and food in the world market.

BSP Governor Amando M. Tetangco Jr. said in a text message to reporters that inflation in the country is expected to remain well-behaved in April and would still fall within the three percent to five percent target set by the central bank for 2011.

“We forecast April inflation to fall within the range of 3.7 percent to 4.7 percent showing that prices have remained well-behaved,” Tetangco stressed.

The BSP raised interest rates by 25 basis points last March 24 as a preemptive move to keep inflation expectations well anchored amid the escalating global oil and food prices. This brought the overnight borrowing rate to 4.25 percent and the overnight lending rate to 6.25 percent.

The BSP slashed key policy rates by 200 basis points between December 2008 and July 2009 to cushion the impact of the global finacial crisis on the domestic economy. This brought the overnight borrowing rate to a record low of four percent and the overnight lending rate to six percent.

The policy rate setting body managed to keep interest rates steady for 20 months due to the country’s benign inflation outlook.

However, inflation pressures continued to build up due to rising prices of oil in the world market that was aggravated by the political tensions in the Middle East and North African (MENA) states.

The central bank is set to hold its policy rate setting meeting on May 5.

“Nevertheless, we will continue to monitor developments, particularly movements in international commodity prices to see if there would be a need to make adjustments in our policy stance,” Tetangco said.

Average inflation slightly eased to 4.1 percent in the first quarter of the year from 4.2 percent in the same quarter last year despite the continued rise in the global prices of oil and food.

Tetangco earlier said the BSP expects inflation to ease after peaking between the second quarter and the third quarter of the year.

“Going forward, we expect inflation to taper off after possibly hitting a peak either in the second quarter or third quarter,” he earlier said.

Monetary authorities said the country’s resilient economy could absorb a 25 basis point rise in interest rates.

“Buoyant domestic demand conditions provide room for a policy interest rate hike without affecting the country’s economic growth prospects,” Tetangco said.