Banks see continued slowdown in inflation

The rate of consumer price increases likely continued to slow down in October for the second consecutive month as fuel and food costs fell during the month.

Fuel prices in international markets have fallen by a quarter since the start of the year. The country has also started to recover from the effects of Supertyphoon “Yolanda” that struck in November last year and supply shocks due to Manila’s truck ban earlier this year.

This comes amid signals by the Bangko Sentral ng Pilipinas (BSP) that benchmark interest rates would be kept on hold in the coming months to allow previous increases to work their way into the economy.

“Food prices may remain elevated but easing oil prices may offset (this),” said Gundy Cahyadi, economist at Singapore’s DBS bank.

DBS, Southeast Asia’s biggest lender, sees Philippine inflation slowing down to 4.2 percent in October, a view shared by BDO Unibank Inc.. This is slower than the 4.4 percent in September. Inflation peaked this year at 4.9 percent in July and August.

Barclays and Metropolitan Bank & Trust Co. both see inflation at 4.3 percent, while Bank of the Philippine Islands expects inflation at 4.1 percent.

All projections are within the BSP’s projected range of 3.7 to 4.6 percent for the month. The BSP wants to keep inflation within the 3 to 5 percent target range. Last year, inflation settled at 3 percent.

Earlier this week, BSP Governor Amando M. Tetangco Jr. said that with price pressures easing, monetary authorities would keep interest rates steady for now to avoid constricting economic growth.

“I think if the inflation situation and the forecast remain favorable and manageable, the market can expect the BSP to maintain the current stance of policy,” he said at a forum last week.

In previous moves, the BSP raised its benchmark interest rates by half a percentage point each to their current level of 4 percent for overnight borrowing and 6 percent for overnight lending.