DBS Bank sees inflation going below 5.6% in 2011

DBS BANK said global developments as well as waning consumer confidence may push Philippine average inflation in 2011 below its current forecast of 5.6 percent.

The Singapore-based bank is taking the lead of the Bangko Sentral ng Pilipinas, and will change its forecast once the latter releases its revised figures next week.

“We see downside risks to our forecast for 2011,” the bank said in a research note. “(But) despite the dovish notes sounded by the central bank, we are not convinced that inflation has already been tamed.”

Last month, BSP Governor Amando M. Tetangco said that latest baseline forecasts show a lower [inflation] path as well as signs that inflation expectations are leveling off.

Tetangco said this development prompted the Monetary Board to keep policy rates unchanged, although the policymaking body had decided to raise the reserve requirements for banks by 100 basis points to 20 percent.

Data from the National Statistics Office show that in May, the consumer price index rose 4.5 percent compared to the same month in 2010. However, the index remained the same compared to April prices.

“Indeed … we are still worried about the potential uptick in core inflation towards the end of the year,” DBS said, referring to the price index excluding items that are subject to volatile changes such as food and energy.

“Moreover, credit growth has been accelerating, reaching a 25-month high of 18 percent year-on-year in April and we believe that this will show up in increased money supply, stoking inflationary pressures down the line,” DBS added. Ronnel W. Domingo