you will excuse the expression ) speculation. my tentative conclusion is that speculative activity may help to account for part of the recent volatility in oil prices. however, the available evidence does not provide clear support for the view that speculative activity has made oil prices during the past year much higher on average than they otherwise would have been. 11 a rather different explanation of the recent increase in oil prices holds that the rise is in large part a symptom of inflationary monetary policies. an extensive literature exists on this topic. the general idea is that, if most prices adjust slowly, the effects of an excessively easy monetary policy will show up first as a sharp increase in those prices that are able to adjust most quickly, such as the prices of commodities ( including oil ). if this idea were valid, then commodity price movements could be used as a guide for setting monetary policy. however, the consensus that emerges from this literature is that the relationship between commodity price movements and monetary policy is tenuous and unreliable at best. moreover, applied to the recent experience, economic models that support the use of oil prices as a leading indicator of monetary policy make a number of other predictions that are strongly contradicted by the facts. these predictions include ( 1 ) that all commodity prices should move proportionally in response to changes in monetary policy ( in fact, oil prices have risen sharply since the spring as other commodity prices have generally stabilized ) ; ( 2 ) that the dollar should have rapidly depreciated as the oil price rose ( in fact, the dollar has been broadly stable during 2004 ) ; ( 3 ) that inflation expectations should have increased substantially ( but long - term nominal interest rates, the level of inflation compensation implicit in inflation - indexed bond yields, and survey measures of inflation expectations concur in showing no such rise ) ; and ( 4 ) that general inflation, though lagging commodity - price inflation, should also rise over time ( but inflation excluding energy prices remains quite low ). models of commodity - price “ overshooting ” also imply that the current surge in oil prices will be almost entirely temporary, a prediction strongly at variance with market expectations as revealed in the futures markets. i conclude that an increasingly tight supply - demand balance, rather than speculation or easy monetary policies, probably accounts for most of the recent run - up in oil prices. i have focused on near - term developments in the oil markets. what about the longer term? in that regard, we can safely assume that world

within the bangko sentral's forecast range of between 5 to 5. 7 %. as the institution mandated to stabilize prices, the bangko sentral is satisfied with this trend. essentially, the continued softening of fuel prices and the strengthening of the peso supported the further deceleration in inflation in october. latest forecasts of the bangko sentral continues to indicate a generally declining path for inflation, with average inflation for 2007 expected to fall within the 4 - 5 percent target, barring unforeseen adverse shocks of course. as a result, the monetary board, in its last policy meeting on november 2, kept the bangko sentral's benchmark policy rates unchanged, but reinstated a tiering of interest rates on bank placements with the bsp to encourage further bank lending. treasury bill ( t - bill ) rates also declined across the board in early november, due primarily to the improved fiscal position of the national government, manageable outlook for inflation and ample liquidity. on the external front, the overall balance of payments position for the first six months of 2006 recorded a surplus of $ 2. 04 billion, an improvement from the us $ 1. 98 billion surplus recorded in the same period in 2005. the improvement resulted from higher inflows in current transfers, particularly from remittances of overseas filipino workers ( ofws ), higher exports and investment inflows. during the first nine months this year, ofw remittances reached us $ 9. 1 billion, up 14. 4 percent from the same period last year as more filipinos found work overseas and banks became more aggressive in offering remittance services to ofws. based on this trend, we expect total ofw remittances in 2006 to set a new record and approximate $ 12 billion. i am also pleased to inform you that our country's gross international reserves ( gir ) reached a new record - high level of us $ 22. 3 billion in october this year. given the sustained uptrend in our international reserves, we have in fact pre - paid some of our foreign loans. likewise, these developments on the external front continue to sustain the appreciation of the peso versus the us dollar. i am sure you are all aware that the peso hit p49. 60 to one us dollar yesterday, its highest level since 2002, as market sentiment continues to be positive. better - than - expected fiscal performance is a key factor in this