MANILA, October 25, 2008 (STAR) By Des Ferriols - The Bangko Sentral ng Pilipinas (BSP) expects the nationwide inflation rate to drop within the target range in 2009 although the whole-year average is still projected at six to eight percent.

The BSP said the inflation rate in November is also expected to drop below the 11.9-percent level recorded in October, mainly because of the easing in local commodity prices.

BSP officer in charge Diwa Guinigundo said it is possible for inflation to fall within the target range in certain months of 2009, possibly ending the year on target.

This year, the inflation target was set at 3.5 to 5.5 percent and by 2009, the target was at 2.5 to 4.5 percent.

However, the BSP has already conceded that the official inflation target would be breached this year and in 2009 because of the surge in oil and food prices that spurred a commodity shock throughout the world.

According to Guinigundo, however, decline in oil prices and the stabilization of commodity prices would usher a corresponding slowdown in the inflation rate.

“Maybe not the average inflation in 2009 but one of the points we are seeing is that there would be months when the inflation rate would be within the target range,” Guinigundo.

Guinigundo said the BSP expects the November inflation rate to slow further down although there was no projected range yet. He said the monthly projection would not be available until the end of the month.

The BSP said earlier that it was initially looking at the possible inflation target of 2.5 to 4.5 percent for 2010, with the rate dropping back to single-digit levels as early as the first quarter of 2009.

Guinigundo said the BSP still has to present its proposed 2010 and 2011 target inflation rate to the Development Budget Coordinating Committee (DBCC).

“But for the notional range for 2010, we are looking at the target for 2009 which is 2.4 to 4.5 percent,” Guinigundo said. “The latest forecast show that for 2010, we’re within range.”

According to Guinigundo, the possibility of the inflation rate dropping back to single-digit levels by the first quarter of 2009 was even more possible now that the numbers indicate easing price increases.

The BSP, however, would not be touching the government’s inflation target for either 2008 or 2009 which meant further tightening in monetary policy could not be ruled out.

At its last meeting, the MB decided on a 25-point hike in its key policy rates, saying that further tightening was made necessary by the persistent volatility of oil prices.

The MB noted earlier that emerging inflation outlook reflects “recent easing” in global food and oil prices. This indicated that domestic prices might also start to moderate, reducing the urgency of the need for monetary tightening.

The BSP’s language had shifted significantly over the past six weeks, compared with earlier pronouncements indicating that it would continue to tighten as necessary.

Chief News Editor: Sol Jose Vanzi

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