The Market Monitor Minding the Nation's Business
The Bangko Sentral ng Pilipinas (BSP) maintained its key policy rates, saying last Friday that economic indicators continue to remain appropriate, even as average inflation in the first quarter of 2016 remains below the government’s target of two percent to four percent growth.
In its inflation report for the first three months of the year, the BSP said average rate of price increases slightly rose to 1.1 percent from 1 percent in the last quarter of 2015, because of the faster rates of selected food items.
Non-food items’ inflation, on the other hand, was steady “as declines in utility rates were counterbalanced by increases in other items such as transport fares,” it added.
Meanwhile, core inflation, which excludes volatile items like food and oil, posted a slower rate of 1.6 percent in the first three months from the 1.8 percent posted in the October-to-December period.
The central bank projects inflation to remain within-target this and next year, as growth is expected to remain strong, despite the negative external environment.
”Although inflation pressures remain largely subdued, the sustained buoyancy of domestic demand continues to allay concerns on potential deflationary pressures,” the BSP said.
It noted that domestic demand remained firm, partly resulting in further increase in domestic expansion to 6.3 percent in the last quarter of 2015.
”Moreover, high-frequency indicators of demand continued to suggest a positive outlook on domestic spending,” the BSP said, citing strong vehicle sales, the still-positive purchasing manager’s index (PMI), and continued improvement of business and consumer sentiments.
The report also noted that “domestic financial market conditions remain sound despite external headwinds.”
”Uncertainty stemming from continuing concerns over global economic growth prospects, the slowdown in China’s economy as it shifts to a more sustainable growth framework, and deepening monetary policy divergence across the globe dampened investor sentiment and buffeted emerging market assets,” the BSP said.
Bond spreads and risk premiums also increased, but the central bank said the country’s debt spreads “remained lower” compared to other countries in the region.
With these factors, the report discounted any deflationary pressures despite the below-target inflation since May 2015.
”Going forward, the BSP has scope to further assess whether weaker external conditions and heightened financial market volatility would require an appropriate policy response,” the central bank said, assuring the public that it “will continue to monitor these domestic and external developments to ensure that the monetary policy stance remains consistent with its price and financial stability objectives.”