Double-digit inflation looms in June, says BPI
Double-digit inflation looms in June, says BPI
MANILA, Philippines–Bank of the Philippine Islands sees inflation in June to break into the double-digit level for the first time since 1999.
This development would likely prompt the central bank to raise key interest rates by another quarter-percentage point during its next policy meeting in July.
In a commentary dated June 5 written by bank economists Emilio Neri Jr. and Michael de Castro, BPI projected a 10.2-percent year-on-year rise in consumer prices in June–assuming that crude oil would stay below $125 per barrel and that rice prices would be steady.
"Meanwhile, core inflation is expected to rise faster in June as the effect of the wage and fare rate hikes … start to kick in," the report said. "This should force the monetary authorities to hike [key rates] by another 25 basis points during the [July 14] Monetary Board meeting."
Core inflation refers to the increase in average prices of consumer goods excluding volatile items like food and energy.
Last week, the Bangko Sentral ng Pilipinas’ policy-making Monetary Board raised its overnight borrowing rate by 25 basis points to 5.25 percent, the first monetary tightening seen in three years.
On the other hand, the bank said that for the remaining part of 2008 through mid-2009, the BSP could hike the current 5.25-percent overnight RRP (reverse repurchase agreement) rate by another 50 basis points, "on the assumption that the headline inflation would no longer be anchored on a peso appreciation."
Last year, the peso rose nearly 19 percent against the US dollar to become Asia’s best performing currency. The local currency has lost 6.6 percent so far this year, closing at 44.135:$1 on Friday.
The central bank’s quarter-percentage interest rate hike last week, was just what the doctor had ordered, BPI said.
"It was necessary for monetary authorities to step in to avoid demand-pull forces from snowballing as it could temper speculative activity," the report said.
The bank agreed with the BSP’s assessment that supply constraints were the dominant source of inflationary pressures and a bigger move was not necessary.
"Nevertheless some form of policy tightening was necessary," the report said. "It helped preserve the monetary authorities’ credibility. The move clearly demonstrated the MB’s determination to fulfill its key mandate of targeting inflation even if it means foregoing some areas of growth.
"Inaction would have been "unacceptable."
Doris C. Dumlao