In line with the inflation targeting approach to monetary policy, the BSP announces that the inflation target for 2011 is 4.0 percent plus or minus one percentage point. This effectively translates to a target range of 3-5 percent. The 2011 inflation target was approved by the Development Budget Coordination Committee (DBCC), which is the Government’s inter-agency economic planning body, under DBCC Resolution No. 2009-10 dated 27 November 2009.
Inflation targeting focuses on price stability as the primary objective of monetary policy. The BSP calibrates its monetary policy settings to achieve the inflation target set by the Government two years in advance, in recognition of the observed lags in the transmission of monetary policy in the Philippines. The announcement of the target—and the BSP’s commitment to achieve it—promotes transparency and accountability in the BSP’s conduct of monetary policy, and helps the public plan and make better-informed decisions about spending, production, investment and saving.
The outlook of relatively stable inflation over the policy horizon reflects expectations of economic activity gradually normalizing, inflation expectations remaining well-anchored, and base effects easing from previous years. The 2011 inflation target is lower than the 2010 target of 4.5 percent plus or minus one percentage point, consistent with the desired disinflation path over the medium term. The tolerance interval of one percentage point around the 2011 point inflation target of 4.0 percent provides room for both upside and downside inflation risks, especially those beyond the direct influence of the BSP, should they materialize over the policy horizon.