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PHL cites manageable outlook in keeping inflation targets for 2015, 2016


The Development Budget Coordinating Committee (DBCC) has set the inflation target at 2 to 4 percent over the next four years as the inflation outlook remains manageable.
 
In Resolution No. 2015–1, the DBCC kept the current inflation target at 2 to 4 percent (officially put as 3 percent, plus or minus one percentage point) for 2015 and 2016, the Bangko Sentral ng Pilipinas said in an e-mailed statement.
 
The inter-agency economic planning body also approved the same target for 2017 and 2018, the central bank said.
 
The government’s inflation target is defined in terms of the average year-on-year change in the consumer price index (CPI) over the calendar year.
 
The Bangko Sentral said the target in 2015-2016 "remains well attuned to the dynamics of the Philippine economy."
 
"In particular, this target is consistent with the country’s economic growth objective of 7 to 8 percent for both years," it said.
 
The DBCC kept the 7 to 8 percent gross domestic product (GDP) target in 2015, but cut the 2016 growth target to 7 to 8 percent from 7.5 to 8.5 percent, Budget Secretary and DBCC chairman Florencio Abad said last January 7.
 
The two-year outlook is understandable, given the weakness in global oil prices which will further spur household consumption, Security Bank Corp. economist Patrick Ella told GMA News Online.
 
"Oil prices are plunging and will continue for the period. And low oil prices will drive private consumption," he said.
 
Inflation in December 2014 slowed to 2.7 percent from 3.7 percent in November and from 4.1 percent a year earlier on lower oil and food prices. Full-year inflation averaged at 4.1 percent – within the 3 to 5 percent target set by the DBCC.
 
In its latest commodity outlook report, Washington-based World Bank foresees oil prices to average between $53 per barrel in 2015 and $57 in 2016.
 
While inflation outlook remains stable and manageable, the 7 to 8 percent growth target may be "too ambitious" if government will rely only on private consumption to drive the economy, Bank of the Philippine Islands economist Nicholas Mapa said in another phone interview.
 
"It might be a stretched target without government spending. The consumption side will be able to churn out a 3 to 4 percent growth, but the X factor is government spending and trade balance to meet that target," he noted.

Manageable outlook
 
Last year, the Philippine GDP grew by 6.1 percent, after accelerated government spending helped the economy recover in the fourth quarter.
 
The inflation target of 2 to 4 percent for 2017 and 2018, respectively, is "based on the recent assessment of current and prospective inflation trends which indicates a manageable outlook over the medium-term," the central bank said.
 
"Structural changes in inflation dynamics and improvements in the economy’s productive capacity support a low inflation environment that is consistent with the economy’s growth trajectory," it added.
 
Ella said uncertainty for those periods come from the movement of oil prices after 2016.
 
But the central bank has made it possible to stay within-target inflation, thanks to its policy tools, Mapa said.
 
"The BSP has done well to keep inflation within government targets with its measures," he said.
 
The Bangko Sentral said inflation has been within target in the last six years and is expected to remain so over the medium-term.
 
"Moreover, the BSP’s credible commitment to price stability has kept inflation expectations well anchored to the target," it added.
 
The central bank noted the multi-year target presents a long-term view on inflation and fosters greater predictability which helps economic decision-making by businesses, households, and other economic agents.
 
It is also in line with the commitment to greater transparency and accountability in its monetary policy.
 
The Monetary Board (MB), the central bank's policy-setting body, will hold its first meeting this year on Thursday, February 12.
 
Citing inflation risks, the MB raised policy rates twice in 2014, the overnight borrowing rate to 4 percent and the overnight lending to 6 percent.
 
It also raised the yields on special deposit accounts (SDAs) twice to 2.5 percent for all tenors.
 
The reserve requirement for thrift banks was also hiked twice to 8 percent, as well as for universal and commercial banks to 20 percent. – VS, GMA News
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