Philippines November Annual Inflation Rate

Posted By on December 6, 2011

MANILA, Dec 6 (Reuters) – The Philippines’ annual inflation rate slowed more than expected in November, and the central bank said on Tuesday it was willing to ease monetary policy early next year if the outlook for growth worsened.

Some analysts are betting on cuts of as much as 50 basis points in interest rates in the first half of 2012 as moderating inflation pressures give authorities the leeway to focus on boosting growth, which has lost significant momentum this year.

“As the favourable inflation outlook provides us flexibility, we are open to possible easing early next year, especially if our own growth prospects continue to be subdued,” Governor Amando Tetangco said in a text message to reporters.

Annual headline inflation in November was 4.8 percent, lower than October’s rate of 5.2 percent and market forecasts of 5.0 percent, based on a new series using 2006 prices.

The old series based on 2000 prices showed annual inflation at 4.7 percent, slowing from October’s 5.3 percent. The central bank is using this series to measure its 2011 target of keeping inflation between 3 and 5 percent — which will be met as the 11-month average is 4.5 percent.

While risks to inflation were tilted to the downside, Tetangco said the central bank was watching geo-political developments and their impact on commodity prices, capital flows and inflation.

Tetangco told Reuters in an interview on Monday meeting this year and next year’s growth forecasts would be a challenge, and there was scope for monetary and fiscal policy to support the economy, with inflation expected to moderate.

Tetangco said monetary easing could be an interest rate cut, a reduction in the reserve requirement ratio, or both.

Annual GDP growth unexpectedly slowed in the September quarter on weak exports and state spending, raising doubts the 2011 growth target of 4.5 to 5.5 percent would be achieved.

At a Dec. 1 policy review, the central bank held interest rates at 4.5 percent, saying it needed to see a continuous moderation in inflation before it considered reducing rates.

“Inflation would continue to just slow in the coming months providing policy flexibility to the central bank, and given the external headwinds we are looking for the central bank cut interest rates by 25 basis points in the first quarter and another one in the second quarter,” said Prakriti Sofat, economist at Barclays Capital said.

The next policy meeting is on January 19.

The central bank raised interest rates in March and May, and then raised bank reserve requirements in June and July, bringing banks’ reserve requirement ratio back to the pre-global financial crisis level of 21 percent.