BSP keeps rates steady, hikes inflation forecasts

MANILA, Philippines (2nd UPDATE) – The central bank on Thursday, September 13, kept its key policy rates unchanged as it expects inflation to pick up this year and the next.

The Bangko Sentral ng Pilipinas (BSP) kept its interest rates at record lows of 3.75% for overnight borrowing, and 5.75% for lending.

At the same time, it raised its inflation forecasts to 3.4% from 3.1% for 2012, and 4.1% from 3.2% for 2013. These, however, remain within its official target range of 3% to 5%.

The hike in the forecasts came after inflation in August hit a 7-month high of 3.8% due to higher food and fuel prices. Food prices were pushed up by supply disruptions due to the series of typhoons and monsoon rain that hit the Philippines in the last two months.

Future inflation ‘within target’: Tetangco

“While inflation forecasts have risen slightly due to the higher August inflation and recent increases in global oil and other commodity prices, the future inflation path remains well within the target,” said BSP governor Armando Tetangco.

Officials said the central bank raised its inflation forecasts Thursday, to 3.4 percent this year and 4.1 percent in 2013 from 3.1 and 3.2 percent, respectively.

“Weak global economic prospects continue to temper the inflation outlook, as a possible easing in global demand could contribute to moderate international commodity prices,” Tetangco said in a statement.

Concern over rising peso

Meanwhile, he said the Philippine peso’s rise — to four-year highs against the dollar this week — could also temper inflationary pressures.

The central bank kept its rates steady to avoid stoking inflation further. Three cuts so far this year had pushed both rates to historic lows as the bank sought to ward off an economic slowdown.

The BSP’s rates are benchmarks for the interest rates that local banks charge on their loans and other financial instruments.

Low rates tend to boost demand for bank loans, which in turn, spurs consumption and investments. Increased consumption drives inflation. – Rappler.com, with reports from Agence France-Presse