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NEWS UPDATES 31 October 2009

Philippine central bank warns against capping oil price

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The Bangko Sentral ng Pilipinas (BSP), the Philippines central bank, has warned against the imposition of any form of price controls, saying such a move would have adverse consequences in the long run, reported the Philippines Daily Inquirer.

The BSP was reacting to the move of Malacañang, the Presidential Palace, to put a cap on oil prices.

“We need to be careful of these schemes [price caps]. At this point, it may seem to be necessary, but it will affect availability of supply in the market in the long run,” BSP Deputy Governor Diwa Guinigundo said in a briefing Friday.

Guinigundo said price ceilings would create market distortions and these may eventually discourage sellers from bringing their products to the domestic market, thereby disrupting supply. Once supply of a commodity shrinks and falls below demand, prices would tend to increase, he said.

Price caps will only lead to inflationary prices in the future, he added.

The central bank official said there was no need for any measure to cap prices of oil or any other commodity, assuring that overall inflation would remain benign this year and in 2010.

Guinigundo stressed that based on estimates by the central bank, inflation would settle at the lower end of the government’s official forecasts.

For 2009, the government aims to keep inflation within a range of 2.5-4.5 percent. For next year, inflation is targeted at between 3.5 and 5.5 percent. Oil prices largely influence overall inflation as fuel products are main inputs to the production and transportation of goods.

The Palace earlier issued Executive Order No. 839 requiring oil firms to temporarily cap prices of their products at their October 15 levels. The order was to remain in effect until the declaration of a state of calamity in Luzon is lifted.

Palace officials said the imposition of the price ceiling was necessary to avoid a worsening of the effects of the two recent calamities on prices of food and other basic commodities.

Typhoon “Pepeng,” which devastated the northern provinces earlier this month, temporarily disrupted the delivery of agriculture and other products coming from that part of the country. The typhoon came after tropical storm “Ondoy” hit the national capital region in September.


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