DBS lowers PH inflation forecast

The DBS Group has lowered again its full-year inflation forecast for the Philippines to 3.1 percent in 2012, mainly due to the sluggish global economy and the inflation results in the first semester.

The financial services provider also said in a research note that it was expecting the Bangko Sentral ng Pilipinas (BSP) to again reduce its policy rates by another 25 basis points within this year.

DBS’ inflation forecast for the Philippines for 2012 was originally set at 4 percent and was slashed to 3.5 percent in May.

“Lower oil prices, a subdued global economic outlook and the benign inflation in the first half of the year prompted this revision,” DBS explained.

Data from the National Statistics Office showed that the rate of increase in consumer prices eased for the third consecutive month in June to 2.8 percent.

This put the six-month average at 3 percent, the lower end of the BSP’s target range of 3 percent to 5 percent.

The low inflation environment prompted the Monetary Board (MB) to reduce the BSP’s overnight borrowing rate by 25 basis points to 3.75 percent and the overnight lending rate to 5.75 percent.

This was the third time this year that the policy rates were lowered. At the start of the year, the rates were at 4.5 percent and 6.5 percent, respectively.

BSP officials said the latest move was “based on [the MB’s] assessment that price pressures had been receding, with risks to the inflation outlook slightly skewed to the downside.”

The DBS said that with inflation still hugging the lower band of BSP’s target, there is still ample room for further rate cuts in the coming months.

“Accordingly, we have also penciled in another 25-bps rate cut before the OBR is kept on hold at 3.5 percent through to the second quarter of 2013,” it added.—Ron W. Domingo