Inflation to peak in 3rd quarter — BSP

INFLATION can be expected to trek higher in the next six months and peak in the third quarter, the Bangko Sentral ng Pilipinas (BSP) chief said yesterday, noting that the figure will remain within the central bank’s target band and, hence, keep current monetary policy appropriate.

BSP Governor Amando M. Tetangco, Jr. said the central bank expects inflation to continue rising, albeit unlikely to breach the four percent ceiling of its target range.

“A closer scrutiny of the monthly inflation path will show that inflation imprints will be rising until sometime third quarter of 2017, and the monthly rates are expected to be very close to the upper band of the target range,” Mr. Tetangco said in a speech at the general membership meeting of the Management Association of the Philippines yesterday at the Makati ShangriLa hotel.

“Even so, our forecast path suggests that monthly inflation will slow down thereafter resulting in [ staying] within target full-year averages over the policy horizon or the next two years,” he added.

Inflation averaged three percent in the first two months of 2017, pulled up by a 3.3% reading in February that was the fastest pace in over two years.

The central bank’s Monetary Board expects 2017 full-year inflation to average 3.4%, higher than last year’s 1.8% average but still within the target band.

The BSP estimates March inflation, which the Philippine Statistics Authority is scheduled to report on April 5, to clock 3-3.8%.

The central bank kept policy settings steady last week, saying that inflation has remained manageable despite a steady rise recorded since late last year.

Coupled with signs of strong and “broad- based” economic growth despite external headwinds from oil price movements, potential policy shifts abroad, as well as modest and “uneven” growth in key economies, manageable inflation allows the monetary authority to keep policy rates steady.

‘JUST AS CHALLENGING’

“With these uncertainties in the external environment, we expect the year ahead to be just as challenging as the last one, if not more,” Mr. Tetangco said.

“The good news is that we have the strong macroeconomic fundamentals to keep the economy moving along its path of robust growth.”

The Philippine economy expanded by 6.8% in 2016 against an official 6-7% target, making it among the fastest-growing in the world.

Growth is projected to pick up further to 6.5-7.5% this year, riding on an investments surge, the government’s infrastructure push, and robust consumer spending.

“The country now has more diversified domestic sources of growth. These should also serve as ample cushions against external shocks,” the central bank chief said.

He added that the peso remains “broadly stable” despite recent depreciation, saying that the local currency has remained competitive while tracking the movements of Asian counterparts.

At the same time, the BSP stands ready to intervene in currency trading should movements turn excessive.

Looking ahead, Mr. Tetangco said the BSP will remain watchful of market developments that could affect the local financial system and affect overall growth prospects, while maintaining that policy makers should remain focused on ensuring sustainable, “inclusive” growth. —