Buenaventura says monetary policy hinges on inflat

The Bangko Sentral ng Pilipinas (BSP) said yesterday it will maintain a neutral monetary policy if inflation came in within targets.

"If inflation is within expectation, we will keep a neutral monetary policy," Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura said yesterday.

That implies that the bank will not alter its overnight interest rates if inflation in August comes in within 6.7 percent to 6.8 percent. The government is to announce the figure today.

But Buenaventura added rates could fall before the end of the year. "There is a good chance to cut rates before the year ends," he said.

Earlier, Bue-naventura said he expects inflation in August to be at an annual 6.7 percent to 6.8 percent.

The BSP chief said prices of food and other commodities were stable last month despite the generally weak peso.

He said there was no remarkable increase in prices of food and other goods because of the improved performance of the agriculture sector which pulled the economy together to post a gross domestic product (GDP) growth of 3.3 percent in the second quarter.

At the same time, prices of crude and other refined oil products were on a downtrend, with the local oil companies implementing price rollbacks for some of their products.

Buenaventura said the BSP’s inflation projection for August "is well within expectations" of the government.

"There is a good chance of meeting inflation targets, but this will depend on the inflation trends for the rest of the year which could head south or north," he added.

At the same time, a steady inflation level gives the monetary body the flexibility it needs to act on its key policy rates.

"While a cut in the key rates of the US Fed always helps, it is not a prerequisite for the central bank to cut its own key rates. What we are really looking and what is more important is the inflation outlook," Buenaventura said.