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BSP says more rate hikes possible |
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By Donnabelle L. Gatdula
The Philippine Star 09/29/2005 The Bangko Sentral ng Pilipinas (BSP) is not ruling out further increases in its key policy rates this year, given continued pressure on inflation from high oil prices, BSP deputy governor Diwa Guinigundo said yesterday. The BSP raised its overnight interest rates by a quarter percentage point last week, its second rate hike this year. Its overnight borrowing rate now stands at 7.25 percent and its overnight lending rate at 9.50 percent — the highest levels since February 2002. "We don’t rule out that option in case conditions warrant it," Guinigundo told reporters. Guinigundo said inflation would continue to remain a threat especially if the expanded value-added tax (EVAT) is implemented. The inflation rate, he said, would reach 7.9 percent this year and 7.5 percent in 2006 but would likely be still subject to change if the EVAT will be implemented. In August, the inflation rate hit 7.2 percent, from 7.1 percent in July. For the period January to August 2005, the inflation rate averaged 8.1 percent. "Average inflation in 2005 and 2006 will likely exceed targets due to rising oil prices and related pressures," he said. Domestic interest rates would be kept at a range of 7.5 percent to 8.5 percent this year and next year. For the period January to August 2005, average interest rates stood 6.5 percent. "Domestic interest rates continued to ease due to ample liquidity and upbeat market sentiment," Guinigundo said. For 2005 and 2006, the peso is being assumed to settle anywhere from 55 to 57 per dollar. "Despite investor concerns about domestic political noise, rising levels of OFW remittances and inward investments have helped maintain the strength of the peso, averaging 55.22 to a dollar from January to September 2005," he said. Analysts have been saying that the BSP is likely to consider another increase in its key policy rates before the end of the year. "We expect there could be more tightening from the BSP later in the year, but this will be mild, perhaps another 25 basis points," ATR-Kim Eng said. The firm said "downward pressure on economic activity is… being exerted by high oil prices and tight fiscal policy, and to reinforce these with unduly tight monetary policy would be detrimental to growth". In a separate review, ING Bank noted that the BSP is more worried now than in the past about high oil prices stoking supply-side pressure on inflation. The bank quoted BSP deputy governor Nestor Espenilla as saying that it was a pre-emptive move to preserve inflation target (7.9 percent for 2005) and avoid need for a drastic tightening later. ING said the inflation has receded from 8.5 percent to 7.2 percent since and the BSP forecast points to further drop to seven percent in September. |
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