BSP sets inflation target of 3.5%-5.5% in 2010

The Bangko Sentral ng Pilipinas (BSP) has set an average inflation target of 3.5 to 5.5 percent for 2010 or lower than the official average inflation range for 2009 of six percent to eight percent.

BSP Governor Amando M. Tetangco Jr. said the 2010 inflation target took into account easing price pressures.

“The inflation outlook has moderated with the decline in food and oil prices from peaks observed during the early part of the year,” Tetangco said.

He also said that price pressures coming from the demand side are also likely to ease following the expected moderation in domestic activity as a result of the global economic slowdown.

Furthermore, the BSP chief said that indicators of inflation expectations have either leveled off or declined, given the BSP’s previous monetary policy actions and assurance to keep inflation within range of target path.

The central bank’s overnight borrowing rate is currently at six percent while the overnight borrowing rate is currently at eight percent.

Inflation, meanwhile has been easing since September following the decline in global and local oil prices.

The inflation rate in November fell to 9.9 percent from from October’s 11.2 percent, latest data from the National Statistics Office (NSO) showed.

Inflation stood at 11.8 percent in September 2008, after hitting 12.5 percent in August, its fastest pace in 17 years.

The central bank’s 2010 inflation target, approved by the Development Budget Coordination Committee, is lower than the forecast range of six percent to eight percent for 2009.

“It is consistent with the inflation forecast of 3.5 percent to 5.5 percent inflation for 2010 as well as with the other medium-term macroeconomic assumptions that the DBCC approved on Nov. 11,” Tetangco said.

Monetary authorities expect a stable inflation over the medium term along with the expected economic rebound in 2010, he added.

The BSP’s policy-making Monetary Board is set to meet on Dec. 18 for its rate-setting meeting.

Brokerage and research firm Philippine Equity Partners (PEP) said that if inflation continues to slow sharply, the BSP may consider an outright cut before the first quarter of next year.

“Although monetary authorities have maintained their neutral policy rate stance, if inflation continues to slow sharply and economic growth weakens, they may consider an outright cut even before the first quarter of 2009,” PEP said yesterday.