Inflation seen falling to 2.6% this month

MANILA, Philippines - Inflation could fall to as much as 2.6 percent this month, giving monetary authorities space to adjust key rates, if necessary, to make sure yearend target is achieved, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

BSP Governor Amando Tetangco Jr. told reporters inflation for July will likely fall between 2.6 and 3.5 percent, similar from what was seen in June, when inflation slowed to 2.8 percent.

A rise in oil and electricity prices will be stabilized by a stronger peso and a decline in price of cooking gas, he explained.

“This reflects that inflation remains manageable. The inflation average over the policy horizon is still expected to fall closer to the lower end of our target range,” Tetangco said in a text message.

“Our current view is that there is some scope to adjust monetary policy settings to protect the inflation target on the downside,” he added.

Year-to-date inflation has settled at three percent or at the lower-end of BSP’s three to five-percent target for the year. The July forecast comes as the policy-making Monetary Board is set to review key rates tomorrow.

Overnight borrowing and lending rates were kept at record-lows of four percent and six percent, respectively, during the last two policy rate meetings with officials pointing to a manageable inflation outlook and the need to support growth.

Analysts said BSP’s pronouncements could be an indication of a rate-cut tomorrow.

“With inflation manageable, I think BSP will cut rates by another 25 basis points,” University of Asia and the Pacific (UA&P) economist Victor Abola said in a phone interview.

He also pointed to large capital flows, which “we do not need and only tend to distort the foreign exchange market.”

The Philippine peso has risen by about five percent this year, making it the best performing currency in the region. A strong peso, however, curbs earnings of Filipino exporters as their products get cheaper abroad. It also trims the value of remittances being received by families of overseas Filipino workers.