IMF  WARNS  RP  VS.  TIGHTENING  MONETARY  POLICY

MANILA
,
MAY 4, 2006
 (STAR) By Des Ferriols - Despite the surge in inflation due to rising oil prices, the Bangko Sentral ng Pilipinas (BSP) is not expected to jump the gun just yet as the International Monetary Fund (IMF) warned against tightening monetary policy too early.

The Monetary Board (MB) is scheduled to hold its policy meeting today against the backdrop of surging oil prices and the anticipated impact on domestic prices and inflation.

The IMF said the BSP will have to do a delicate balancing act, heading off inflation on one hand and being careful not to dampen consumer spending which has been fueling the country’s economic growth in the last few years.

The IMF said in its newest Regional Outlook report said the one key risk was the narrowing interest differential between the US and countries in Southeast Asia, especially the Philippines where the gap has dipped to negative.

"This differential has narrowed to around 50 basis points, from above 240 basis points before the current tightening cycle began," the IMF said. "Even for the ASEAN-4, where the nominal increases in policy rates have been the largest, the interest differential remains well below its historical average."

So far, however, the IMF said the small interest differential has proved sustainable because risk premia have fallen below 2 percent as of February 2006, compared to an average of above 4 percent since mid-2003.

Apart from the benign international financial conditions, this also reflected improved market sentiment in the Philippines following the recent adoption of policy packages to deal with fiscal vulnerabilities.

In the Philippines, the IMF noted that the spread on dollar bonds has fallen below 300 basis points for the first time in recent history.

However, the Fund said the benign international financial environment could worsen. "In this regard, recent financial developments in the United States are giving grounds for caution."

But even then, the IMF said that should external spreads rise, the impact on sovereign regional borrowers should be manageable.

Among emerging Asian economies, the Fund said only Indonesia and the Philippines would be affected by a rise in risk premia, given their relatively higher spreads and reliance on foreign financing.

"But even in these two cases macroeconomic fundamentals have improved significantly over the past few years," the IMF pointed out. "Private external debt is now at moderate levels, while fiscal positions have improved–and not only because growth has picked up, but also thanks to a series of fiscal measures."

On the whole, the IMF said the BSP and other central banks in emerging Asia would be facing a delicate balancing act. "They are addressing the inflationary pressures that have arisen from the doubling of international oil prices between the end of 2003 and end-2005," the Fund said.

But at the same time, the IMF said monetary officials were being careful to avoid undermining the "nascent recovery of domestic demand." If monetary policy were to tighten too much, it could impact domestic spending which has been the primary growth driver in the country for the last few years.

Agri sector rebounds, posts 4.8% growth in Q1 By Rocel C. Felix The Philippine Star 05/04/2006

A considerable increase in rice and corn production is expected to boost the first quarter growth of the agriculture sector to between 4.7 percent and 4.8 percent, a big jump from the poor 0.55 percent growth posted during the same period in 2005.

Agriculture Secretary Domingo F. Panganiban said a growth driver for the first quarter aside from improved production of rice and corn, is the aquaculture sector, especially in the Visayas region. Fishery production is expected to rise by 10 percent to 12 percent from January to March this year.

"These are our projections. We will be coming out with the final figures by next week," said Panganiban.

Panganiban said rice production in the first quarter is expected to increase by 7.6 percent, reversing the 1.5 percent decline during the same period in 2005.

The DA chief said that the La Niña weather phenomenon, a weather phenomenon characterized by continuous rains during the dry summer months benefited the crops sector.

Panganiban’s statement jives with the projections made earlier by the Bureau of Agricultural Statistics which said the projected output of the major staples in the first quarter is expected to post an increment of seven percent for rice and 25 percent for corn compared to last year’s first quarter production.

Last February, harvests have been completed in about 330,000 hectares or 32 percent of the expected harvest area for the first quarter. As farmers covered an estimated 716,000 hectares or 86 percent in the first quarter, the DA expects harvest to further increase.

"This is about 1.1 million metric tons of production, 2.3 percent higher compared to last year’s production for the same period," Panganiban said previously.

On the other hand, full-year palay production is projected to reach 15.1 milion metric tons (MT) from last year’s 14.6 million MT. Earlier, the agriculture department projected a conservative incremental production of 300,000 MT or 14.9 million MT from last year’s 14.6 million MT.

With this, there is a greater likelihood that the country will be able to reduce this year’s rice importations to 1.2 million MT from 1.8 million MT in 2005.


Chief News Editor: Sol Jose Vanzi

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