Philippine central bank sees inflation dropping to 3.5% in 2009

03-Apr-2009 Intellasia | Manila Standard | 7:01 AM

The central bank has lowered its inflation forecast this year to 3.5% from 3.9%, Bangko Sentral Governor Amando Tetangco Jr. said at a briefing for the Management Association of the Philippines yesterday.

The latest forecast of 3.5% for the year will give us some room, Tetangco said.

Given the increase in oil prices and the exchange rate movements, we will adopt a more measured approach to monetary policy this time.

A girl practises the guitar during a free guitar workshop for street children, conducted by instructor Ramon Ramos (not pictured), at a shelter in Manila February 19, 2009. The Philippines' social welfare department estimates up to 200,000 children live in the streets of Manila (Reuters)

Tetangco said the drop in oil and transport pricesthe reason for the lower inflation forecastwould offset the pressures arising from a weaker peso.

He declined to offer forecasts on the exchange rate, saying the market would determine the pesos worth. But he did not rule out some central bank intervention to smoothen volatilities.

Calyon, a unit of Frances Credit Agricole SA, yesterday said the peso would slide by 8.7 percentto 53 to the dollar by the end of Juneas workers overseas sent less money home and a widening budget deficit deterred investment in the countrys assets.

A deteriorating fiscal performance will likely add to contracting remittances, clouding the outlook for the economy and the currency, said Sebastien Barbe, Calyons Hong Kong-based head of emerging market strategy.

Against the backdrop of renewed risk aversion, we expect the peso to depreciate in the coming months.

The central bank sees inflation in March falling to 5.9 to 6.8% from Februarys 7.3%, and because of the drop in crude oil prices and the 50-centavo reduction in transport fares.

Inflation in February increased from Januarys 7.1%, which analysts said could be a blip because inflation was still seen declining the rest of the year.

The central bank has geared its monetary policy toward achieving the inflation target it sets with other economic managers.

The central banks target this year is an inflation rate of 2.5 to 4.5%, and its target next year is 3.5 to 5.5%.