Bangko Sentral ng Pilipinas (BSP) officials said yesterday the benign inflation picture gave them the flexibility to maintain key policy rates, which have been unchanged since March 2002.
The BSP also said that the absence of broad-based price movements also indicated a lack of generalized demand pressures on inflation.
"While there are some improvements in domestic demand such as the observed recovery in bank lending and some gains in manufacturing output, the overall demand conditions remain consistent with a generally benign inflation setting," the BSP said in a statement.
David Cohen, research head of MMS International in Singapore, said that "the expected boost from oil prices remained all behaved."
For her part, Bank of the Philippine Islands economist Cecilia Tanchoco said she was surprised by the deceleration in the inflation rate, considering there were local oil price hikes. Refiners cut the price of one product – diesel – later in the month.
"If the price of rice is stable, you won’t see much pressure. Food is 50 percent of the consumer basket," Tanchoco said.
"Fuel, light, water is around five percent of the total consumer expenditure basket, and the oil component is less than three percent. It’s direct impact on inflation is small," she added.
The National Statistics Office (NSO) also reported that inflation in the National Capital Region (NCR) stood at 3.1 percent in March, lower than the 3.5 percent rate recorded in February.
In the provinces, prices rose by a slower 2.9 percent in March, unchanged from the previous month’s level.
Given the uncertainties over the duration and the outcome of the Iraq war, economists said it would be prudent for the BSP to keep its policy rates on hold.
"I don’t think they are prepared to ease in the face of intermittent pressure on the peso," said Cohen.
The BSP recently took measures to mop up liquidity to curb speculation in the peso by requiring commercial banks to park more funds with the central bank.
"You’ve got to wonder now what the BSP policy actions may be, recalling that they tightened liquidity a couple of weeks ago in anticipation of inflation," said Jojo Gonzales, managing director of Philippine Equity Partners.
"With the peso-dollar rate strengthening and crude oil prices easing, perhaps the risk of accelerating inflation in the coming months has diminished."