BSP expects lower inflation

Written by Jun Vallecera / Reporter

Thursday, 26 March 2009 23:52

Price pressures were seen to have eased some more in March and likely to have slowed down the rate to between 5.9 percent and 6.8 percent, according to the Bangko Sentral ng Pilipinas (BSP) on Thursday. According to BSP Governor Amando Tetangco Jr., the sustained retreat in oil prices and scale-back on transport fares should help push inflation lower in the month. “The decline in crude-oil prices during the month and the downward adjustments in transport fares and electricity rates may have offset the upward price pressures due to the weaker peso,” he said. A weaker peso encourages those who have access to foreign exchange, such as beneficiary families of overseas Filipino workers, to swap these for the local currency, flooding the system with additional liquidity. Normally, the presence of more local currency in the system is believed adequate to help push the economy by as much as 4.4 percent in terms of the gross domestic product this year. The added presence of liquidity has compelled Tetangco to call on the banks and other financial institutions to make full use of this bonanza of declining cost of money. “There is enough liquidity and there is reduction in the cost of money. Use it. It is there.” This pertained particularly to the estimated half-a-trillion pesos worth of liquidity entering the system since December last year when the Monetary Board slashed its policy rates a total of 125 basis points as antidote to the ongoing global recession. That this much money was not inflationary could be deduced from moderate rate averaging only 7.3 percent in February, from 7.1 percent in January, according to Tetangco. Should inflation prove within forecast range in March, its rate could range from 6.7 percent to 7.1 percent.