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NEWS UPDATES 9 July 2010

Central bank may lower inflation forecast

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The Bangko Sentral ng Pilipinas (BSP) said it may lower its baseline inflation forecast for this year after consumer price increases eased last month. “We will review the stance in the next monetary policy meeting [on July 15]. Yes, it is possible [to lower inflation forecast],” BSP Governor Amando Tetangco told Manila Times reporters.

The government reported a few days ago that inflation had eased to a seven-month low in June despite the costlier food and school tuition.

According to the National Statistics Office, inflation fell to 3.9 percent last month from 4.3 percent in May. A year ago, inflation stood at 1.5 percent.

The June inflation was a notch above the low-end forecast range of the central bank, which earlier said that price increases for the month would average between 3.8 percent and 4.7 percent.

Last month’s figure brought the six-month average inflation to 4.2 percent, which is still within BSP’s full-year target range of 3.5 percent to 5.5 percent.

This inflation path, Tetangco said, puts the full-year inflation targets for this year and 2011 in a “fairly safe” territory.

“Negative news from Europe seemed to have abated, translating in reduced volatilities in the international commodity and [foreign exchange] markets. Nevertheless, we will have to continue to be watchful of demand conditions on the domestic front, as well as official action from the major central banks to see if any changes need to be made on current policy stance,” the central bank governor said.

BSP Deputy Governor Diwa Guinigundo, however, told reporters that if the European debt crisis persists, then there will be pressure for commodity prices to go up.

“Everybody thought that the global economy will be stronger until Greece’s sovereign issue loomed,” he said.

Guinigundo said that monetary authorities still believe that inflation will peak in the third quarter.

“We are not into the lean season. So there could be pressure on rice prices due to the rainy season. And this is something that is cyclical or seasonal. However, the rate [of price increases] will depend on how severe the lean season is,” he said.

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