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Philippines: Inflation seen to bottom out this month or October
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects inflation to bottom out either this month or next month after easing to a 35-month low of 1.7 percent in August.
BSP Deputy Governor Francisco Dakila Jr. told The STAR the latest inflation outturn is consistent with the central bank’s prevailing assessment that inflation would continue to decelerate in the third quarter before picking up slightly in the fourth quarter.
“Based on the BSP’s latest inflation projections, inflation is likely to bottom out between September and October,” Dakila said.
Dakila said ample domestic food supply conditions, along with lower global oil prices have contributed to a manageable inflation environment.
At the same time, he said the deepening trade tensions between the US and China along with ongoing geopolitical risks have raised global economic uncertainty which poses a downside risk to the inflation outlook.
Dakila said based on the latest assessment, inflation would settle within the central bank’s two to four percent target range between 2019 and 2021.
During the meeting of the Monetary Board last Aug. 8, the rate-setting body set its latest inflation forecast at 2.7 percent for 2019 before increasing to 2.9 percent for 2020 and 2021.
“The BSP will continue to keep a close watch over latest economic developments to ensure that the monetary policy stance remains consistent with the BSP’s price stability objective while being supportive of economic growth,” Dakila said.
The Monetary Board has so far raised interest rates by 50 basis points due to easing inflation and slower than expected economic expansion.
It also reduced the reserve requirement ratio for big and mid-sized banks by 200 basis points and for small banks by 100 basis points, freeing up about P210 billion in additional funds to boost economic activity.
The country’s gross domestic product (GDP) growth hit a four-year low of 5.5 percent in the second quarter from 5.6 percent in the first quarter due primarily to the delayed passage of the 2019 national budget.
HSBC economist Noelan Arbis said inflation is likely to fall further in the months ahead after easing below the lower end of the BSP’s two to four percent target last month.
Arbis said the BSP is likely to reduce the RRR by another 100 basis points due to relatively tight domestic liquidity before lowering interest rates by another 25 basis points in the fourth quarter.
“Below target inflation provides room for further mo-netary easing from the BSP,” Arbis said.
For his part, Security Bank chief economist Robert Dan Roces said the Monetary Board may cut interest rates by 25 basis points on Sept. 26 before reducing the RRR after Sept. 30.
“The cuts will help pump-prime the economy, although at this point we will be hard-pressed to reach the target of six to seven percent. We forecast GDP to be at or a little over six percent for full year 2019,” Roces said.
Source: https://www.philstar.com/business/2019/09/09/1950203/inflation-seen-bottom-out-month-or-october#PmFZvy3mE7yCpzcz.99