BANGKO Sentral ng Pilipinas Governor Amando Tetangco Jr. said inflation in May likely slowed to as low as 2.9 percent from 3.4 percent in April on lower prices of oil and power rates for the month.
Tetangco in a text message to reporters on Friday predicted inflation in May settled between 2.9 percent and 3.7 percent.
“The lower prices of domestic oil as well as the downward adjustment in electricity rates could exert downside influence on inflation, which could be partly offset by higher rice prices,” Tetangco said.
“Moving forward, the BSP will continue to monitor evolving price conditions in line with the BSP’s commitment to price stability conducive to balanced and sustained economic growth,” he said.
Inflation in April remained at 3.4 percent, the same rate a month ago, as slower increases in the rest of commodity groups offset increments in the prices of food, transport and communication.
The April inflation was significantly faster than 1.1 percent a year ago and remained the fastest in more than two years since 3.7 percent in November 2014. The figure brought the average inflation in the first four months at 3.2 percent, still within the target range of 2 percent to 4 percent.
The manageable inflation plus the robust economic growth prompted the Monetary Board of Bangko Sentral ng Pilipinas to keep the benchmark interest rates steady in its meeting on May 11. The interest rates on overnight lending was kept at 3.5 percent, 3 percent for overnight borrowing, and 2.5 percent for overnight deposit facility. The reserve requirement ratios were likewise left unchanged.
The board’s decision was based on its assessment of manageable inflation. Latest baseline forecasts showed inflation continued to be within the target range of 2 percent to 4 percent for 2017 and 2018.
With favorable inflation, the board maintained the average inflation forecast this year and next at 3.4 percent and 3 percent, respectively.
Gross domestic product, meanwhile, settled at 6.4 percent in the first quarter, lower than 6.8 percent a year ago and 6.6 percent a quarter ago, but remained one of the fastest in the region, behind China’s 6.9 percent.
Earlier, Japanese financial holding company Nomura said in a report Bangko Sentral was likely to increase interest rates in the second half of the year due to accelerating inflation rate.
“We reiterate our forecast of a total of 50 basis points in rate increases in the second half of the year (after Mr. Espenilla takes office in July). We continue to see a clear case for policy rate hikes this year because of rising inflation risks,” Nomura said.