Based on the BSP inflation report for January to March 2015, the inflation for the quarter is lower than the quarter- and year-ago rates of 3.6% and 4.1%, respectively.
Slower increases in food prices resulting from adequate domestic supply helped eased inflation as well.
Domestic demand also remained solid, as real gross domestic product (GDP) expanded by 6.9% in fourth quarter 2014, bringing full-year 2014 GDP growth to 6.1%.
Global economic prospects improve gradually, but growth across countries continues to diverge, BSP said.
It said that growth conditions in major emerging markets, particularly China and India, have stayed generally muted. At the same time, the global inflation environment remained benign as the outlook for prices of international commodities, particularly oil, continued to be subdued.
Domestic financial market conditions are also favorable, BSP said. The continued manageable inflation environment, higher-than-expected output growth in the fourth quarter 2014, and strong corporate earnings boosted investor optimism during the quarter.
Strong buying momentum was also observed in local financial markets, resulting in the surge in the stock market index and the continued oversubscription in the government securities auctions.
Meanwhile, spreads on the country’s sovereign debt instruments increased only marginally, indicating stable market sentiment toward Philippine debt papers. The Philippine banking system also remained generally sound and resilient.
The BSP also maintained its policy settings in the quarter. The BSP’s key policy interest rates at 4% for the overnight borrowing or reverse repurchase (RRP) facility, 6% for the overnight lending or repurchase (RP) facility, and the accompanying rates for term RRPs, RPs, and the Special Deposit Account (SDA) facility. The reserve requirement ratios were left unchanged as well.
“These decisions were based on the assessment that the inflation environment continued to be manageable, with the risks to the inflation outlook staying broadly balanced over the policy horizon and inflation expectations remaining well-anchored to the inflation target band,” BSP said.
Looking ahead, latest baseline inflation forecasts show a lower but within-target inflation path over the policy horizon. Risks to the inflation outlook continue to be broadly balanced, supporting the assessment of a manageable inflation environment.
Inflation expectations also remain well-contained, while domestic economic activity continues to expand at a solid pace, underpinned by strong private consumption, increased government spending, and favorable liquidity and credit dynamics.
“Meanwhile, the outlook for global economic growth as well as the shifts in foreign monetary policy, especially in major advanced economies, could be an important consideration in the coming months to the extent that they influence domestic inflation expectations and market sentiment,” BSP said. – Rappler.com