BSP maintains rates, says inflation on target

Friday, June 30, 2006

By Maricel B. Burgonio, Reporter

SEEING that inflation appears to be well contained, the Monetary Board has decided to keep interest rates unchanged.

“The Monetary Board believed that the evidence on current and expected inflation continues to support the maintenance of policy settings in the meantime,” Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. affirmed Thursday.

However, the risks to inflation outlook remain, mainly due to the movements in oil prices, wage hike and domestic power costs. 

Tetangco also added that rising global interest rates would be closely monitored in view of their impact on capital movements and inflation. 

The United States Federal Reserve is expected today to increase its current 5-percent rate by 25 basis points.

The board, meantime, has decided to maintain BSP’s key policy interest rates at 7.5 percent for overnight borrowing or reverse repurchase (RRP) rate and 9.75 percent for overnight lending or repurchase (RP) rate.

The rates have been in place since October last year despite the series of oil increases and US Fed hikes.

Tetangco explained core inflation and other recent data continue to paint a scenario of limited demand-based pressures, while the latest BSP forecasts remain suggestive of a deceleration in inflation in the second half, leading to within-target inflation in 2007. 

Based on the results of BSP’s surveys among households and private-sector ana­lysts, inflation expectations appear to be well contained.

Tetangco said oil price is likely to be sustained given a tight demand-supply balance in the international oil market. 

“Along with likely adjustments in domestic power costs, this points to a continuing environment of supply-side pressures. Such a prospect increases the risks to inflation expectations and the likelihood of second-round effects, particularly on wage-setting,” Tetangco said. 

The Monetary Board is confident it will reach its 4-percent to 5-percent inflation target for 2007, and stands ready to act upon evidence of escalating risks to the outlook for inflation and to inflation expectations.

In 2006 the BSP expects inflation to reach 7.3 percent to 7.9 percent.  For the month of June, inflation is expected to increase up to 7.2 percent from 6.9 percent in May.

 

http://www.manilatimes.net/national/2006/june/30/yehey/business/20060630bus1.html