Bangko Sentral says global demand to stay weak, cuts 2013 inflation forecast

The Bangko Sentral ng Pilipinas lowered its inflation forecast for the year on expectations of modest global economic activity, a ranking official said Thursday.

 

Monetary authorities now see consumer prices rising by 3.1 percent this year, slower than an earlier projection of 3.2 percent, Bangko Sentral Deputy Governor Diwa Guinigundo told reporters at a briefing.

 

"The modest pace of global economic activity could continue to temper the broad outlook for inflation," Bangko Sentral Governor Amando Tetangco Jr. said in the same briefing. 

 

Benign price movements of oil and non-oil goods doused expectations of prices moving at a faster pace, Guinigundo said. 

 

In May, inflation settled at 2.6 percent, unchanged from a month earlier. The May figure pulled inflation in the first five months to 3 percent—at the lower end of Bangko Sentral’s 3 to 5 percent target.

 

Benign inflation has paved the way for monetary authorities to keep policy rates—a benchmark for bank loans—at record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending since October. 

 

This has allowed corporations and individuals to borrow and spend for less, helping the economy expand.

 

On Thursday, the Monetary Board kept policy  unchanged. 

 

Guinigundo also announced, however, that the central bank raised its 2014 inflation forecast to 3.6 percent from 3.4 percent earlier as funds previously parked in the Bangko Sentral are withdraw and placed in more productive economic activity. 

 

"The higher forecasts were on assessment of the liquidity impact from latest cuts in our SDA (special deposit account) rate and limits on it," he said. 

 

The yield on SDA placements, which monetary authorities use to manage liquidity, were cut thrice since January—the last being in April. 

 

A higher yield against other investment instruments mops up liquidity in the financial system, while a lower rate flushes money out into the economy.  

 

In May, the Bangko Sentral also limited the types of funds banks can deposit in the SDA window.

 

"Going forward, the BSP will continue to monitor emerging price and output conditions to ensure that the monetary policy stance remains consistent with maintaining stable prices while supporting economic growth," Tetangco said in announcing recent policy moves of the Monetary Board. — VS, GMA News