Inflation seen falling below gov’t projection
Inflation in the Philippines may fall below the government target range this year amid a drop in world oil prices and slower global growth, but the Bangko Sentral ng Pilipinas (BSP) needed to cut interest rates more aggressively to shield the domestic economy, London-based Capital Economics said.
“Inflation is unlikely to be any worry to the bank (BSP). The headline rate dropped last month to 2.6 percent year-on-year and is set to fall sharply in the months ahead as declines in global oil prices drag down fuel costs and weaker growth weighs on underlying price pressures,” Capital Economics said in a March 13 report titled “BSP to take decisive action.”
As such, Capital Economics said headline inflation might average 1.7 percent this year, much lower than its previous forecast of 2.8 percent.
It meant the rate of increase in prices of basic commodities could be lower than the 2-4 percent target range for 2020.
However, Capital Economics warned that “the decision to introduce strict containment measures in the capital city, Manila, will provide another headwind to the economy, which is likely to be hit hard by a slump in tourism spending and a downturn in global growth,” referring to the one-month community quarantine that started on March 15, Sunday.
Amid the COVID-19 pandemic, Capital Economics expects the Philippines’ gross domestic product growth to further slow to 4.5 percent this year, below the government’s 6.5-7.5 percent goal and 2018’s eight-year low 5.9-percent expansion.
“As such, the need for support from the central bank has grown. We think the bank will opt for a larger rate cut of 50 basis points at its meeting on Thursday, taking the policy rate to 3.25 percent. The BSP may also announce measures to help struggling businesses with cash flow issues,” Capital Economics said.
On Saturday, BSP Governor Benjamin Diokno said on a social media post that the Monetary Board—the BSP’s highest policy-making body—was “ready to deploy any or all its policy tools, as appropriate, to address all challenges to our own financial markets and growth prospects.”Also, Diokno said there was no reason to believe that the COVID-19 crisis could severely cut the Philippine growth momentum.
“The truth is that the economic fundamentals are on our side. Even under the worst possible scenario, the Philippines can still grow this year and in the medium term by about 6 percent,” Diokno said. INQ
