BSP, analysts see inflation still hitting target
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Wed, 05 Jun 2019 16:20:09 +0000
CENTRAL bank officials still see the country’s inflation rate averaging within the government’s target this year despite the two-month high print recorded in May.
In a message to reporters on Wednesday, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said last month’s 3.2-percent inflation “cannot be seen as an acceleration,” adding that “one data point does not constitute a trend.”
According to him, the May rate is within the Bangko Sentral’s forecast range of 2.8 to 3.6 percent for the month.
“Looking ahead, we expect inflation to be in the neighborhood of 2 percent in the third quarter of 2019. With world oil prices easing, we expect the annual inflation rate to be in the vicinity of 3.0 percent in 2019 and 2020,” Diokno said.
BSP Deputy Governor Diwa Guinigundo, for his part, said the two major factors behind the faster inflation rate were higher food prices and utility rates.
He stressed, however, that because the drivers of inflation remain on the supply side, it was therefore generally temporary.
“The only risk is when the uptick [becomes] prolonged and starts generating second-round effects and higher inflationary expectations, especially in the face of the heavy catch-up on public spending on infrastructure in the second half,” Guinigundo said in a separate message.
He added that, even with the one-month price gain in May, year-to-date inflation continues to be within the 2 to 4-percent target.
“So BSP will continue to monitor key developments and indicators to guide the next steps moving forward,” Guinigundo said.
Following a series of rate hikes last year, monetary authorities reduced the Bangko Sentral’s overnight borrowing, lending and deposit rates by 25 basis points (bps) to 4.50 percent, 5 percent and 4 percent, respectively, on May 9.
Analysts’ view
HSBC and ANZ Research analysts shared the central bank officials’ view, maintaining their belief that monetary authorities will continue to cut interest rates.
HSBC economist Noelan Arbis said the banking giant expected May’s higher-than-expected inflation to be largely transitory.
He estimated headline prices to decline below 3 percent in the second half of the year, given favorable base effects and benign demand-side pressures.
“Our forecast also factors in the possibility of higher food prices in the second half as a result of potential typhoons,” said Arbis, who also sees headline inflation to average 3.1 percent in 2019.
“Benign inflation and lower GDP (gross domestic product) growth provide additional scope for the BSP to further ease monetary policy,” he added.
ANZ Research economists Mustafa Arif and Sanjay Mathur also see headline inflation to stay around the mid-point of the BSP’s target in the coming months.
“Slowing growth momentum should keep a lid on demand pressures. Furthermore, a high base effect will also come into play in H2 (second half),” they said.
They forecast headline inflation to average 2.9 percent in 2019, but warned that the key risk is a harsher-than-anticipated El Niño weather pattern occurrence this year.
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