The Bangko Sentral ng Pilipinas (BSP) cut its inflation forecasts for 2010 and 2011 and kept its interest rate at a record low on Thursday, showing little rush to join many of its neighbours in raising rates.
Analysts said interest rates were likely to rise by the end of the year as strong economic growth built up inflationary pressures, with some still expecting the BSP to tighten policy in August.
“Inflation is de-accelerating given the beneficial impacts from lower food commodity prices as well as low fuel-related costs,” said Barclays Capital economist Prakriti Sofat.
“That lower inflation is giving flexibility to the bank to keep rates lower for a little bit longer just to take extra insurance given the uncertainty in the global recovery.”
The central bank cut its inflation forecasts for the second review in a row, although it acknowledged upward pressures on prices. It expects inflation at four percent in 2010 and three percent in 2011, down from previous forecasts of 4.7 percent and 3.6 percent, respectively.
It said monetary policy was appropriate in the light of the favorable inflation outlook and on-target inflation expectations.
The central bank said to promote a long-term view on inflation, increase policy predicatability and anchor inflation expectations, it would adopt a fixed inflation target of 3 percent to 5 percent for 2012 to 2014.
Helped by falling commodity prices, the annual inflation rate fell to a seven-month low of 3.9 percent in June, which the central bank said gave it flexibility to maintain policy and support growth.
The central bank also revised up export growth to 15 percent in 2010 from a forecast of 12 percent, while it raised import growth expectations to 20 percent from 18 percent
Its steady policy stance worried some analysts, who thought leaving rates at a record low as in a period of strong growth risked intensifying inflationary pressures.
