BANGKO Sentral ng Pilipinas Governor Amando Tetangco Jr. said inflation in March likely decelerated further to as low as 0.6 percent from 0.9 percent in February mainly due to lower power rates.
“The BSP projects March inflation to settle within 0.6 percent to 1.4 percent range. The downward adjustment in power rates and the recent appreciation of the peso could offset higher domestic oil prices during the month,” Tetangco said in a text message.
The peso has gained strength against the greenback since the US Federal Reserve decided to maintain key interest rates earlier this month.
The peso on March 22 registered a five-month high against the dollar at 46.29, its strongest level since 46.21 on Oct. 20, 2015. It settled at 46.40 on March 23,
“Looking ahead, the BSP will remain attentive to evolving price trends to ensure that the monetary policy stance remains consistent with the mandate of preserving price stability conducive to sustained economic growth,” Tetangco said.
The manageable inflation environment prompted the policy-setting Monetary Board to keep the benchmark interest rates steady during its meeting Wednesday last week. It was the 12th consecutive time that the board kept the rates steady since October 2014.
The board maintained the key policy rates at 4 percent for the overnight borrowing or reverse repurchase facility and 6 percent for the overnight lending or repurchase facility. The interest rates on term RRPs, RPs and special deposit accounts were also kept steady. The reserve requirement ratios were likewise left unchanged.
Latest forecasts showed that average inflation was likely to settle within the target range of 2 percent to 4 percent for 2016-2017.
The Monetary Board noted that the risks surrounding the inflation outlook had remained tilted to the downside, as downward price pressures could arise from slower-than-expected global economic activity and potential second-round effects from lower international oil prices.
Meanwhile, the board said upside risks to the inflation outlook persisted, especially the impact of El Niño dry weather conditions on food prices and utility rates, as well as pending petitions for power rate adjustments.
The board likewise reduced the average inflation forecast this year to 2.1 percent from the 2.2-percent estimate made during the February meeting. The 2017 forecast average was cut to 3.1 percent from 3.2 percent.
Inflation in 2015 averaged 1.4 percent, well below the target range of 2 percent to 4 percent and significantly slower than 4.1 percent in 2014.
Inflation in January slowed to 1.3 percent from 1.4 percent in December. It decelerated further to 0.9 percent in February, bringing the first two months’ average to 1.1 percent.
The last time the Monetary Board changed the policy rates was on Sept. 11, 2014, when overnight borrowing was increased by 25 basis points to 4 percent and overnight lending adjusted upward to 6 percent.