BSP says policy appropriate as Nov inflation at 8-mth low

by Karen Lema, Reuters

Posted at Dec 05 2012 11:16 AM | Updated as of Dec 05 2012 07:17 PM

BSP says policy stance remains appropriate 

MANILA- The Philippines had its slowest annual inflation rate in eight months in November, and the central bank said its monetary policy stance remains "appropriate" ahead of a rate-setting meeting next week.   

The consumer price index rose 2.8 percent in November, below analysts' forecasts and easing from October's pace of 3.1 percent year-on-year. 

Core inflation, which strips out some of the more volatile components including food, also slowed to an eight-month low of 3.4 percent in November. In October, the on-year pace was 3.6 percent. 

November's headline and core inflation levels were the lowest since March this year. 

Month-on-month inflation was 0.1 percent, compared with a contraction of 0.1 percent in October.  

After the inflation data came out, Bangko Sentral ng Pilipinas Governor Amando Tetangco told reporters "At this point in time, the stance of monetary policy is appropriate, although we also need to be mindful that there can be changes down the road and we have to react as maybe necessary."  

Stable food prices, on the back of favourable weather conditions, plus a strong peso, helped sustain the slowdown in inflation, which is on track to fall near the bottom end of the central bank's 3 to 5 percent target bank for the year. 


A favourable consumer price outlook has allowed the BSP to cut its key policy rate by a total 100 basis points this year to a record low of 3.5 percent to protect the economy from global headwinds and dampen the peso's rise. 

Radhika Rao, economist at Forecast Pte. in Singapore, said the central bank "will maintain the current accommodative stance, though the rate cutting cycle has reached its end."

"Against the backdrop of strong third quarter GDP numbers and robust credit growth, we see little reason for the central bank to ease rates any further into 2013. Currency concerns will be addressed through non-rate tools," she said. 

The Philippines, once known as "the sick man of Asia", posted the second strongest annual economic growth in Asia in the third quarter, lagging only China. 

Tetangco said the economy's faster-than-expected annual expansion of 7.1 percent in the September quarter, together with the outlook for inflation, will be taken into account when the central bank meets on Dec. 13 to review policy. 

Deputy Governor Diwa Guinigundo said on Tuesday the economy does not need more fiscal and monetary support at this point, but structural and infrastructure reforms must be maintained to sustain strong economic growth.

Guinigundo also said measures to facilitate foreign exchange outflows to dampen the rapid rise of the peso, emerging Asia's strongest currency this year with gains of around 7 percent, were in place and "in high gear".  

A strong currency can help moderate inflation, but it also makes Philippine exports more expensive. It also reduces the purchasing power of remittances received by families of Filipinos working abroad, therefore crimping growth.  

Manila is targeting economic growth of 5 to 6 percent this year and 6 to 7 percent next year.