'2011 inflation target most likely to be met'

ABS-CBN News

Posted at Jul 07 2011 11:49 AM | Updated as of Jul 08 2011 03:31 AM

MANILA, Philippines (UPDATE) - The Bangko Sentral ng Pilipinas (BSP) said on Thursday inflation pressures from higher commodity prices and excessive liquidity remained manageable, and it expected to meet the government's 3% to 5% inflation target for 2011.

And the BSP will review its forecast of 7% growth in remittances due to a possible fall in the number of Filipinos hired in Saudi Arabia, who sent home $1.5 billion last year, Assistant Governor Cyd Amador told a media forum.

Saudi Arabia's plans to make firms hire more locals and a push by Asian countries for better conditions for their citizens working as domestic help could affect 40% of the 1.2 million Filipino workers there, a workers' group has said.

A cut in the number of Filipino workers in Saudi Arabia would add to other factors, including unrest in the Middle East and North Africa and the disasters in Japan, that are expected to see remittance growth slow from 8.2% in 2010.

That could undermine economic growth, as remittances underpin domestic spending, and also moderate inflation.

Amador said the BSP would likely meet its inflation target of 3% to 5% even after data this week showed average inflation in the first half of 2011 was near the top of the target band based on a new measure of inflation.

Amador said the central bank was "very watchful" of liquidity pressures from capital inflows, even as she reiterated that inflationary pressures were under control.

"At the moment inflationary pressures, coming from food shocks, energy shocks and liquidity shocks are very manageable," Amador said.

She said the central bank was ready to use all tools under its disposal, including the reserve requirement for banks which it raised last month, to ensure excessive liquidity did not create further inflationary pressures.

Placements in the central bank's short-term lending window, an indicator of liquidity, was P1.44 trillion ($34 billion) in the week ending June 17, just slightly lower than the record P1.51 trillion hit in April.

"We will not rule out any particular tool to manage inflation," Amador said.

Analysts expect the central bank to raise the banks' required reserves for the second time in a row at its policy meeting on July 28, before it resumes its rate hike campaign.

Some analysts have penciled in two more interest rate increases for the rest of the year in addition to the two rate rises totalling 50 basis points delivered in March and May.

Inflation at 4.6% in June

Annual inflation accelerated to 4.6% in June from 4.5% in May, based on the year 2000 basket of goods. The June figure was the highest recorded by the statistics office since April 2009.

Using the 2006 consumer price basket, meanwhile, inflation rose by 5.2% in June compared to 5% in May.

The statistics office has updated the base year and weights for the consumer price index to better reflect economic conditions. - Reuters