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Philippine central bank still wary of inflation risks

Publication Date : 18-07-2014

 

Authorities remain wary of lingering pressures that may push consumer prices further up in the coming months and put their already precarious inflation targets for the year at risk.

According to the minutes of the central bank’s latest policy meeting, regulatory officials are ready to make further adjustments in monetary settings, despite concerns over the country’s slowing economic growth.

“The monetary board reiterated that it stands ready to undertake further policy actions as necessary to safeguard price and financial stability,” documents released by the Bangko Sentral ng Pilipinas (BSP) on Thursday showed.

Monetary officials have tightened policy settings in their last three meetings. In April and May, banks were told to start setting aside more of their clients’ deposits as reserves to keep that money from circulating in the economy.

Last month, rates for special deposit accounts (SDA) were also raised, encouraging banks to park their idle money with the BSP.

These steps were meant to push down demand which, if successful, would offset price hikes caused by tighter supply of certain commodities, such as food and fuel.

The BSP’s inflation target is now at risk due to several factors. Food inflation, for instance, stood at above 5 per cent since December 2013. This was a result of poor harvests and infrastructure bottlenecks caused by the damage brought by supertyphoon “Yolanda” last November.

Drier weather as a result of the El Niño weather disturbance later this year may make matters worse, the BSP said.

Also, pending petitions for power rate increases, as well as geopolitical tensions making oil more expensive, threatened the prices of goods.
 
Last month, inflation slowed down slightly to 4.4 per cent from 4.5 per cent in May. This brought average inflation for the first semester to 4.2 per cent, which was above the midpoint of the BSP’s 2014 target of 3-5 per cent.

 

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