BSP: Policy still appropriate as December inflation rises

Reuters

Posted at Jan 04 2013 10:53 AM | Updated as of Jan 04 2013 06:53 PM

MANILA - Philippine inflation picked up less than expected in December, and the central bank said its policy stance remains appropriate but it will continue to review monetary settings and see if other macroprudential measures are needed to keep price pressures in check.

The consumer price index rose 2.9 percent in December, below analysts' forecasts and picking up from the previous month's annual pace of 2.8 percent.

The latest data brought the average inflation rate in 2012 to 3.2 percent, near the bottom end of the central bank's 3 to 5 percent inflation goal.

Core inflation, which strips out some of the more volatile components including food, slowed to 3.3 percent in December from 3.4 percent in November.

"The risks to inflation over the policy horizon remain fairly balanced," Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a mobile text message to reporters.

"This, together with the expectation that real GDP growth would continue to be strong suggests our current policy settings are appropriate."

The central bank's Monetary Board will meet on Jan. 24 to review policy.

"Policy direction is clear-cut in our view, with the central
bank unlikely to ease rates any further supported by strong growth momentum on the domestic front, driven by robust consumption sector and fiscal support," said Radhika Rao, economist at Forecast Pte in Singapore.

The central bank cut its benchmark rate by a total of 100 basis points last year to shield the economy from the global downturn and contain the peso's strength. It said it expects price pressures to remain manageable in the next two years, giving it policy flexibility.

Last month, it trimmed its 2013 inflation forecast to 3.1
percent from 3.9 percent and its 2014 forecast to 2.9 percent from 3.1 percent.

Other central banks in Asia are likely to maintain an accommodative policy stance, with inflation under control.

Southeast Asia's biggest economy, Indonesia, said on Wednesday inflation slightly eased in December, while Thailand's inflation quickened to its fastest since Nov. 2011, but core inflation fell within target.

On Thursday, Tetangco said the central bank will likely keep interest rates low this year and growth should remain on a solid footing, aided by strong domestic consumption and higher government spending.

In the third quarter of 2012, the Philippines had annual economic growth of 7.1 percent, the second-fastest pace in Asia after China. The rapid pace makes it likely that growth for all of 2012 will surpass the Philippine government's 5 to 6 percent target.

It is aiming a faster growth of 6 to 7 percent this year.