Low March inflation won't lead to rate cut, says BSP

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said lower inflation rate last month would not automatically translate to a reduction in key interest rates during the scheduled policy rate setting meeting next week.

BSP Governor Amando Tetangco Jr. said in an interview with reporters that monetary authorities need to assess other factors such as second round effects on inflation arising from soaring oil prices in the world market.

“We need to think of the potential impact of future developments. We need to look at factors that can affect inflation in the future,” Tetangco stressed.

He pointed out that major factors being monitored by the central bank include oil prices due to concerns in the Middle East and North African (MENA) states.

He said the unabated rise in the price of oil in the world market could result to second round effects including fare hikes, clamor for higher wages, higher food prices, among others.

Inflation eased to a 30-month low of 2.6 percent in March from 2.7 percent in February, bringing to 3.1 percent the average inflation in the first three months of the year.

“Average inflation will still be below the mid-point of the range,” the BSP chief said.

The BSP has so far slashed interest rates by 50 basis points on the back of benign inflation outlook as well as the fragile global economic growth. The body slashed policy rates by 25 basis points last January 19 and by another 25 basis points last March 1.

This brought the overnight borrowing rate back to a record low of four percent and the overnight lending rate to six percent.

The next policy rate setting meeting of the Monetary Board is scheduled on April 19.

Furthermore, he added that monetary authorities would also closely monitor the inflow of capital into the Philippines from advanced economies amid the economic concerns in the US and the debt crisis in the Eurozone area.

According to him, the decision of the US Federal Reserve to further keep interest rates at record levels of close to zero would further translate to higher capital flows to emerging markets including the Philippines.

However, pronouncements about the absence of the need to further stimulate the US economy would translate to steady interest rate differentials

“The impact of that on us is that interest rate differentials will be maintained and there is no impetus for higher inflows to the Philippines,” he said.