By Joann Santiago
MANILA, Oct. 23 (PNA) — Lower risks posed by oil prices, among others, made the Bangko Sentral ng Pilipinas (BSP) policy-making Monetary Board (MB) lower the central bank’s inflation projections for 2014 to 2016.
After the Board’s meeting Thursday, it decided to cut the BSP’s inflation forecasts for the three-year period to 4.4 percent, 3.7 percent and 2.8 percent. These were previously at 4.5 percent, 3.8 percent and three percent for 2014 to 2016.
In a briefing, BSP Deputy Governor Diwa Guinigundo said the lower inflation path was brought about by the drop in oil prices in the international market, among others.
He noted that Dubai crude is priced at USD 102.31 per barrel to date, lower than the USD 105.24 per barrel in October 2013.
He said futures of this item are on the decline for this year and next year at USD 99.39 per barrel for 2014 and USD 87.29 per barrel for 2015.
However, the futures for 2016-17 are on the uptrend at USD 88.40 per barrel and USD 88.50 per barrel, respectively.
Guinigundo said the weaker-than-expected growth of the global economy is another factor in the slight drop in the domestic inflation rate.
He explained that since global demand is not expected to be that strong given the uneven path of the global economy, “demand for commodities is also expected to moderate.”
Also, risks from the growth of domestic liquidity is not a major factor anymore because of the MB’s decision to address this earlier in the year through the hike in banks’ reserve requirement as well as the interest rate of the BSP’s special deposit account (SDA) facility and the key rates.
Relatively, impact from any decisions of the Federal Reserve is not expected to be negative on the Philippines.
He noted that earlier talks about the final cut in the Fed’s stimulus program and the eventual hike in its key rates is now facing uncertainties.
He said capital flows to the US were noticeable, especially when talks that the Fed might end its stimulus program this month and start hiking key rates in the third quarter of 2015.
He, however, noted that weak output in other parts of the world, like in Europe, China and Japan, is expected to result to lower exports for the US and in turn weaker domestic output.
The continuous tapering in the Fed’s stimulus program was on back of more positive signs of economy in the US but Guinigundo said there might be second thoughts among US monetary officials now vis-à-vis the impact of external developments.
With these factors, the central bank official said the scenario could be “either a scheduled tapering in end-October and/or a delay in the normalization of interest rates in the US.
“From our perspective, anything that would delay the normalization of credit cycle in the US and the conclusion of quantitative easing or continued uncertainty in the market provide us some space in terms of maintaining our policy rates,” he said, adding that “growth has become a key issue for both emerging economies and advance economies.” (PNA)