Inflation may reach 2.7%, GIR could be $1B higher

By Jun Vallecera

Reporter

INFLATION may still hit a low of 2 percent this month from 2.2 percent last month but may also go as high as 2.7 percent, said BSP Governor Amando Tetangco Jr.  At the same time, Tetangco said the country’s stock of foreign exchange resources, or its gross international reserves (GIR), was likely to end the year higher than originally forecast. Instead of the $25-billion full-year GIR predicted, the adjusted estimate placed the reserves a full billion dollars higher. Peso liquidity, or M3 growth, has galloped at a far faster pace of 23 percent, fueling concerns over the likely trajectory of inflation in the months ahead. What this means is that the cost of money may not be as cheap as when the 91-day Treasury bill rate fell to 2.8 percent at the beginning of the month. This also means the upward push coming from the adoption of the higher value-added tax rate and oil prices has fully dissipated, according to Tetangco. “Notwithstanding this, favorable supply conditions will keep inflation subdued.” Tetangco has committed to keep inflation within 4-percent during the year. Some private analysts have also forecast inflation to average no more than 3.1 percent this year in the belief the BSP would be able to rein in and slow down the rapid pace of liquidity growth. Meanwhile, Tetangco said the gross international reserves was likely to end the year a full billion dollars higher than the original forecast of $25 billion. The bulk of the increase was seen to be from the continued flow of foreign savings looking for domestic opportunities in both stock or equity as well as the debt or fixed-income markets. The inward flow of foreign savings has helped boost the already surplus state of the current account and has put more pressure for liquidity to expand further but Tetangco has made it clear they will not tolerate liquidity growth above 20 percent over an extended period. Liquidity growth averaged 22.8 percent in January followed by a 22.4 percent growth the following month.

 

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