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Inflation to ease to 9% by Dec, says central bank

abs-cbnNEWS.com | 11/19/2008 9:07 PM

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Philippine inflation could ease to as low as 9 percent by December despite the double-digit growth in domestic liquidity, according to the Bangko Sentral ng Pilipinas (BSP).

BSP governor Amando Tetangco Jr. said Wednesday that even as the volume of money in the financial system continues to grow, it is still possible for the country's inflation rate to go down to single-digit levels as early as next month since prices of basic commodities have been declining.

"At this point in time, it’s okay to have this much liquidity," he said. "Given what's happening overseas and the possible impact on the Philippines, it is important that we maintain sufficient levels of liquidity."

Domestic liquidity is one of the critical indicators that the central bank monitors since it has a direct and wide-ranging impact on inflation rate. Uncontrolled expansion in money supply could trigger a rise in the prices of basic commodities. Normally, the BSP controls the amount of liquidity in the system to control inflation.

The country's money supply accelerated in September, expanding by 13.5 percent year-on-year from 9.8 percent in the previous month.

Earlier this year, when inflation hit double digits, the BSP tightened on money supply. But due to the deepening global financial crisis, it decided to slowly loosen its grip by closing three of six special deposit account windows this year.

The BSP also opened a dollar repurchase facility, reduced the reserve requirements of banks, allowed banks a one-time opportunity to reclassify their assets and also doubled its peso repurchase budget. It said it preferred to manage domestic liquidity through these monetary tools rather than by tweaking its benchmark policy rates.

The central bank is widely expected to keep its interest rates steady when it meets on Thursday.

as of 11/19/2008 9:12 PM