price stabilization measures and its effects on - Philippine Institute ...

<strong>and</strong> high interest rates. However, the inflation rate was below the government’s target of 9.25-9.75 percent.In the Philippine context at least, inflation is still regarded as a threat to macroeconomicstability. After being maintained at a single digit level for the past four years, 1995–1998,inflation reached double digit in the first quarter of 1999. The Philippines remains to be one ofthe high inflation countries in Asia, although the average inflation rate of 8.2 percent from 1995to 1998 was better compared to other Asian countries affected by the financial crisis. Incomparison to other Asian countries, <strong>price</strong> movements in the Philippines used to acceleratefaster. In 1992, the inflation rates of Malaysia, Taiwan, Thail<strong>and</strong>, <strong>and</strong> Singapore were recordedat 4.7 percent, 4.5 percent, 4.2 percent <strong>and</strong> 2.3 percent, respectively, as compared to thePhilippines' 8.9 percent. Nevertheless, the inflation differential has narrowed down as thecountry's inflation has moved more closely to those of said Asian countries.Nominal interest rates for both borrowing <strong>and</strong> lending instruments of banks slightlyincreased from 1992 to 1998. However, the growth in domestic interest rate is decreasing whichcould be the result of the efforts of the government to bring down the bank’s cost of borrowing.In addition, the downward trend of the nominal interest rate could have also been influenced bythe BSP’s policy of reducing the reserve requirements of banks that resulted in the reduction ofthe intermediation cost. Furthermore, the moral suasion adopted by the BSP over banks tooperate in a manner that will contribute to the attainment of the monetary goal of the governmentbut consistent with the profit maximization of the banks also helped in the reduction of theinterest rate.Table 2. Consumer Price Index (CPI), Philippines, 1995-1998ITEMS 1995 1996 1997 1998Food <strong>and</strong> Beverages 109.0 120.4 124.5 135.8Clothing 106.2 112.0 119.3 128.6Housing <strong>and</strong> Repair 111.1 122.9 135.7 151.4Fuel, Light <strong>and</strong> Water 103.1 109.4 119.4 126.4Services 106.4 115.7 129.6 148.1Miscellaneous 102.8 102.7 106.4 115.2All 108.0 117.8 124.8 136.9Source: Selected Philippine Economic Indicator, BSP, April 1999.10