October inflation at 4-month low

Posted at 11/06/12 1:59 PM

MANILA, Philippines - Philippine inflation eased more than expected in October, allowing the central bank to focus on supporting growth and managing capital inflows which have helped turned the peso into emerging Asia's strongest performing currency this year. 

The consumer price index rose 3.1 percent in October from a year earlier, the statistics office said on Tuesday, the lowest since August. 

Economists in a Reuters poll had forecast an annual inflation rate of 3.5 percent in October, slower than the previous month's annual climb of 3.6 percent. 

"This validates the recent monetary policy decision of the BSP to ease," Deputy Governor Diwa Guinigundo told Reuters in a mobile text message. 

The latest data brought the average inflation in the 10 months to October to 3.2 percent, below the lower half of the central bank's 3 to 5 percent target band. This leaves the central bank room to keep policy rates at a record low in the near term. 

Euben Paracuelles, economist at Nomura in Singapore said the latest inflation data raised the chances of another rate cut in December, although further easing would likely depend on strength of capital inflows into the Philippines. 

"Whether they think about cutting (rates) again, that is certainly now more possible in December," Paracuelles said.      

"Inflation remains benign...given that condition is in place, what would trigger the BSP to cut is whether they are concerned about the impact of excessive capital inflows."     

Other central banks in Asia are likely to maintain an accommodative policy stance, with inflation under control and given lingering concern about the global economy. 

Meanwhile, Malacañang expressed satisfaction at the low inflation rate, saying the Philippines has registered the lowest inflation for October, among Southeast Asian nations which have already reported their inflation rates. The Philippines' 3.1% inflation in October compared to 7% in Vietnam, 4.61% in Indonesia, and 3.32% in Thailand.

"The Aquino administration has consistently pursued equitable and inclusive economic growth. Ensuring a manageable inflation rate is part of this effort. This is reflected in the third quarter Pulse Asia Ulat ng Bayan survey that indicated an 11-point improvement in the performance rating of the administration in controlling inflation," deputy presidential spokesperson Abigail F. Valte said, in a statement. 

"We have always maintained that good governance results in good economics. The effects of our reforms have already manifested in the lives of our countrymen. This is reflected in the exceptional public trust, satisfaction, and support for the President and his administration."

On Oct. 25, the Bangko Sentral ng Pilipinas cut its key policy rate for a fourth time this year to protect domestic demand and deal with capital inflows, which could intensify after Moody's Investors Service raised its credit rating for the Philippines on Oct. 29. 

Manila, thanks to its sound macroeconomic fundamentals, is attracting inflows of foreign capital inflows and these have kept the peso rising against the dollar and made the stock market one of Asia's best performer this year.  

While a strong peso helps moderate imported price pressures, it has the undesired effect of making Philippine exports less competitive and reducing the buying power of foreign currency remittances, key drivers of growth. 

Last week, Tetangco said the central bank could no longer rely on policy rate adjustments alone and would look at other policy tools to manage hot money coming in, suggesting a pause in policy easing. 

Tetangco's deputy, Diwa Guinigundo, said "The BSP will continue to monitor capital flows and the asset markets to ensure that the increments in domestic liquidity do not compromise our price stability objective and do not generate spillover effects particularly on the real estate industry," he noted in a reference to the BSP's identification of real estate as a potential bubble hotspot, although it has not as yet reported signs of asset price bubbles or stretched valuations. 

The central bank will hold its last policy meeting for the year on Dec. 13. - With ABS-CBNnews.com