MANILA, Philippines – Despite the continued slowdown of inflation in March, the Bangko Sentral ng Pilipinas said it remains vigilant amid risks that could cause an uptick in the rise of commodity prices.
“Clearly, while we see inflation falling within the target range this year and next, there are additional challenges to our operating environment this year relative to last year,” BSP Governor Amando M. Tetangco Jr. said in an e-mailed statement.
Inflation eased for a second month to 3.9 percent in March on the back of lower price increases for housing, water, electricity, gas, and other fuels.
This puts the three-month average to 4.1 percent, above the midpoint of the central bank’s three to five percent target range.
“Inflation has slowed over the last two months. However, the upside risks to inflation that we have mentioned before still remain,” Tetangco said.
“In particular, we note potential price pressures that could emanate from increases in power rates, higher food prices and potential volatility in oil prices are still present,” he added.
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“The uncertainty as to when supply-side pressures will dissipate also highlights the potential risk of second-round effects,” Tetangco noted.
The BSP, mandated to keep prices stable, last month kept key policy rates stable amid inflation expectations seen falling within target.
However, monetary authorities hiked banks’ reserve requirement (RR) ratio by one percent age point due to the sustained high domestic liquidity growth seen since July.
“[W]e continue to be mindful of strong domestic liquidity and credit growth that could heighten financial stability risks… [This] was an important consideration for the pre-emptive move of raising RR at our last meeting,” Tetangco stressed.
The central bank’s Monetary Board will revisit policy settings next on May 8.
Tetangco said as inflation is expected to average above the midpoint of the target range this year, the BSP’s room to adjust policy settings has narrowed.
“We continue to see inflation staying within our target range over the policy horizon, but given that the full-year averages are expected to be slightly above the mid-point of our target ranges and we have a lower target range for 2015, the room to keep rates steady is narrower,” Tetangco pointed out.
