Benign inflation seen until 2012

Reuters

Posted at Oct 06 2010 01:18 PM | Updated as of Oct 07 2010 12:00 AM

MANILA, Philippines - The central bank expects consumer prices to remain benign until 2012, supporting the case for keeping the policy rate steady, a central bank official said on Wednesday.

The annual inflation rate fell 3.5% in September, the slowest since November and below forecasts, data showed, ahead of Thursday's meeting of the central bank to review policy.

"This (latest inflation data) will further shift down the inflation trajectory this year through 2012, thus providing BSP (central bank) additional ground to stay and effectively mitigate any interest rate differential," central bank Deputy Governor Diwa Guinigundo said in a mobile text message to reporters.

"With the economy's improving investment to GDP ratio, we should be seeing further evidence of robust growth coupled with benign inflation," he said.

The central bank is widely expected to hold interest rates steady at a record low of 4% on Thursday. Prior to the release of the inflation data, there was a debate on whether the central bank will move to raise rates as early as November.

The Philippines is among few countries in Asia that have yet to lift interest rates since the global financial crisis. Central bank governor Amando Tetangco has previously said the monetary authority could keep its benchmark interest rate steady in 2010 if the outlook for inflation remains favorable.

The central bank forecast average inflation this year to reach 4% before slowing to 3.25% in 2011. It expects inflation in 2012 to settle at 2.97%.

Socio-economic Planning Secretary Cayetano Paderanga has said this year's growth could be above the 5% to 6% government target after annual growth hit close to 8% for both the first and second quarters of the year.