Tuesday, January 18, 2011

BSP sees no need to raise rates

MANILA, Philippines - The central bank sees no need at present to raise interest rates or tighten other policy settings, with inflation seen moderate in the near term despite rising global fuel and food costs, Governor Amando Tetangco said.

Emerging price pressures, such as in food and energy, prompted the Bangko Sentral ng Pilipinas's (BSP) to raise its inflation forecast for 2011 to 3.6% from 2.35% at a policy review last month, when it left its key interest rate at a record low of 4%.

"There is no urgent need for the BSP to raise interest rates at this time because the inflation outlook continues to be within the inflation target for the next two to three years," Tetangco told Reuters in an interview on Tuesday.

The revised central bank inflation forecast is consistent with the government's target range of 3% to 5%.

"Right now, the way we see it, the situation is manageable and the potential spillover will continue to be limited, and inflation expectations are still consistent with the medium-term inflation target of 3% to 5%," Tetangco said.

Food inflation has risen to the top of the agenda for many policymakers with memories still fresh of the 2008 food crisis, when soaring prices sparked riots in several countries, high inflation and in several cases deep trade deficits.

Governments around the world have been taking measures to tackle soaring grain prices, with China dumping plans to import several million tonnes of expensive corn, and South Korea cutting import tariffs on some products.

Inflation pressures

The Philippines on Thursday said it would suspend import duties on wheat and cement imports.

Tetangco said monetary policy could not address supply-side factors that were generating inflation pressures, noting that in 2007 and 2008, the BSP had not responded to first-round effects of rising food and fuel prices.

"If there are second-round effects that are beginning to emerge, such as the possibility of increase in wages, then I think there is scope for monetary policy to consider a change in the stance if there is a threat to meeting the inflation target."

In 2010 inflation was 3.8%, at the low end of the government's 3.5% to 5.5% target range. A Reuters poll last month found analysts expect inflation of 4.2% in 2011.

The Philippines is one of few countries in the region not to have raised rates since the end of the global financial crisis and says it can continue to do so as long as inflation is benign.

But with the economy having gathered steam and price pressures expected to grow, analysts believe the central bank will start raising rates towards the middle of the year.

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