Thursday, February 6, 2014

Philippines holds rates, says inflation is manageable

    The Philippines' central bank held its policy rates steady, as widely expected, describing inflation as "manageable" and forecast to remain within the central bank's target ranges this year and 2015.
    The Central Bank of the Philippines (BSP), which has maintained its overnight borrowing rate at 3.50 percent since October 2012, acknowledged that the balance of risks to the inflation outlook remains "slightly weighted towards the upside" given the pending petitions for higher utility rates and the possible rise in food prices.
    Inflation in the Philippines has been accelerating the last five months, hitting 4.2 percent in January, the highest since November 2011 mainly due to higher food prices from adverse weather. The central bank targets inflation at a midpoint of 4.0 percent in 2014, plus/minus 1 percentage points, while in 2015 the inflation target is 3.0 percent, plus/minus 1 percentage point.
    The decision by the BSP's monetary board was expected following a text message sent by the governor, Amando Tetangco, to reporters on Wednesday in which he said the bank still had room to keep rates steady but that room may be narrowing due to the risks to the inflation outlook.
    In addition to the impact on food prices from Typoon Haiyan, import prices are also likely to be under pressure from the decline in the Philippine peso.
    The peso lost 7.5 percent against the U.S. dollar in 2013 and has lost a further 1.7 percent so far this year, trading at 45.18 to the dollar today.
    The BSP said the global economy had become more challenging due to heightened financial market uncertainty following the adjustment of monetary policy in the United States and concern over the sustainability of growth in emerging market economies.
    But the BSP said domestic activity is likely to stay firm, with buoyant demand, strong fiscal and external positions, as well as favorable consumer and business sentiment supporting the economy.
    The Philippines' Gross Domestic Product expanded by 1.5 percent in the fourth quarter of last year from the third quarter for annual growth of 6.5 percent, down from 6.9 percent.


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