Central bank reiterates will act if inflation spreads


Posted at Jun 05 2008 08:20 AM | Updated as of Jun 05 2008 04:20 PM


MANILA - The central bank said on Wednesday it would alter monetary policy when there were signs that inflation had spread to the broad economy.

The comments came a day before the central bank holds a policy meeting to decide on interest rates.

The central bank said in a statement it would "act decisively and adjust monetary policy settings accordingly as and when second-round effects of supply shocks become evident".

Economists are evenly divided whether the central bank will raise rates at its meeting on Thursday. The annual inflation rate rose to a near-three year high of 8.3 percent in April and could rise further in May.   

A Reuters poll has predicted the May number, which will be announced on Thursday before the central bank meeting, will come in at 9.1 percent.

But economic growth slowed to 5.2 percent year-on-year in the first quarter after 7.2 percent expansion in 2007, which could argue against a rate increase.

Central Bank Governor Amando Tetangco has said that the economic slowdown would dampen inflation.
He said also that the central bank would "act decisively" if it perceived the 2009 inflation target of 2.5-4.5 percent to be at risk.

That appeared to signal that the central bank had shifted focus to 2009 and virtually given up on its target of 3-5 percent inflation in 2008.