BSP seen to tighten policy

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is expected to tighten its monetary policy in the second half of the year in anticipation of higher inflation movements, the Australia and New Zealand Banking Corp. Group Ltd. (ANZ) said.

“We forecast  tightening cycle to commence by the second half as a pre-emptive move by the central bank ahead of the shift to a lower inflation target range of two to four percent for the policy period 2015-2016,” Eugenia Fabon Victorino, ANZ economist for Asia Pacific, said.

ANZ revised recently its average inflation forecast for the Philippines this year to 3.8 percent from the original 3.6 percent.

“However, we recognize further upside risks to our forecast as public transport prices are likely to rise in the third quarter,” Fabon added.

Electricity prices are likewise seen to move upwards this year, despite the 60-day temporary restraining order (TRO) issued by the Supreme Court on Manila Electric Co. (Meralco).

Headline inflation rose 0.7 percent month-on-month, the fastest monthly increase in 20 months, to 4.1 percent in December.

Annual gains in food prices dominated the December numbers, reflecting increased demand mainly due to the holiday season.

“Stripping out the volatile components of energy and food, core inflation at 3.2 percent year-on-year (from 2.8 percent) remained below the headline figures,” ANZ said.