RP inflation seen at 6% next year

The International Monetary Fund (IMF) expects the country’s inflation rate to slow down to six percent in 2009, saying there is room for further monetary easing by the Bangko Sentral ng Pilipinas (BSP).

The IMF said the BSP’s monetary policy has changed “appropriately” and it agreed with the assessment of Philippine monetary officials that inflationary pressures are beginning to ease.

“The mission expects inflation to average 9.8 percent this year and six percent in 2009,” the IMF said in a statement after concluding its annual macroeconomic review.

“If the economic slowdown proves protracted and inflation expectations adjust sufficiently downwards, which appears to be a likely scenario, monetary policy could be eased in the period ahead,” the IMF said.

But the IMF said the BSP needs to ensure that it could preserve the level of reserves at a sufficiently high level because this would help sustain confidence in the peso as well as the resilience of the financial system.

“Recent reforms have strengthened the financial system but spillovers from the global financial crisis need to continue to be monitored,” the IMF said.

The IMF’s projected inflation for 2009 was at top end of the range projected by the BSP.

The government’s official inflation target for 2008 was 3.5 percent to 5.5 percent and the 2009 official target rate was 2.5 percent to 4.5 percent. But actual inflation is projected to reach 7-9 percent in 2008 and 4-6 percent in 2009.

Pressures on the inflation rate have abated but the BSP has thus far resisted the push to ease its policy rates, saying that it expected food and oil prices to remain volatile, creating enough room only for keeping monetary policy steady.

The BSP said the inflation forecast are likely to be lower than previous estimates although the revised official forecast was not released pending approval by the Development Budget Coordinating Committee (DBCC).

The BSP said in a briefing yesterday that rice prices have appeared to have peaked in September which had led to the slowdown in rising food prices as a whole.

But according to the BSP, oil prices are expected to remain volatile because the movements in global demand could be easily affected by positive supply shocks.

“We believe oil prices will continue to be volatile,” said Cyd Amador, managing director of the BSP’s department of Economic Statistics.

Although commodity prices have corrected, Amador said earlier that there are still price pressures in the pipeline.

“The driving force behind sustained run-up has been tightness in supply and demand balances,” Amandor said. “Supply responses to rising relative prices have been slow due to geological and technological constraints especially in oil sector.”

Nevertheless,  Amador said that based on the latest available data, inflation outlook were showing reduced price pressures, with the inflation forecast lower than previous estimates in 2008 and 2009.