Private banks analysts estimate

‘Aug inflation down likely at 0.5-1%’

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Inflation last month likely eased further from the rate posted in July on the back of a continued decline in local oil pump prices and steady food costs, analysts from private banks polled by The Manila Times said.

Headline inflation in August may have settled in the 0.5 percent to 1 percent range, according to the forecasts given by the analysts, who see the easing of prices allowing the central bank to keep its key policy rates unchanged.

The low end of the forecast range slips below the 0.8 percent rate of inflation recorded in July, and stands slightly above the 0.2 percent pace projected by the Bangko Sentral ng Pilipinas’ (BSP) for August.

The Philippine Statistics Authority (PSA) is releasing the official inflation data today, Friday.


Five big banks see record-low rate
Emilio Neri Jr., lead economist and vice president at the Bank of the Philippine Islands (BPI), gave the lowest inflation estimate for August of 0.5 percent, considering the soft prices of petroleum and stable food prices.

Mabellene Reynaldo, analyst at Metropolitan Bank and Trust Co. (Metrobank) Research, sees the rate at 0.6 percent, also noting the still low food prices and continued decline in gasoline prices.

“Oil prices continued to slide given high production from the US and OPEC [Organization of the Petroleum Exporting Countries], along with a [milder]-than-estimated decrease in oil inventories despite higher demand from solid US economic growth,” Reynaldo explained.

She added that a strong dollar also kept oil prices low.

Reynaldo further noted that in the food category, local rice prices contracted more sharply in the month from a high base in August 2014 when rice prices hit record levels due to low supply.

Rahul Bajoria, economist at United Kingdom-based investment bank Barclays, also expects inflation in August at 0.6 percent, although he did not cite specific reasons for his forecast.

A senior economist from ING Bank Manila, Joey Cuyengkeng, expects the August inflation figure to come in at 0.7 percent, which he said would be a record low.

At the upper end of the range projected by the analysts is 0.7 percent to 1 percent, given by Justino Calaycay Jr., analyst at Accord Capital Equities Corp.

Policy tweak
BPI’s Neri, who estimated August inflation at its lowest rate of 0.5 percent, does not expect the BSP to change its policy settings anytime soon based on a record-low inflation.

“We do not see record-low inflation being a primary consideration for policy settings – BSP seems more focused on keeping financial conditions stable amid rising prospects of a US policy rate hike,” Neri said.

However, given that the BSP has been providing US dollar liquidity to temper excessive volatility in the foreign exchange market rate, Neri said he believes the BSP needs to offset the unintended drain in money supply caused by the foreign exchange sales on the spot market and ensure that monetary conditions do not deviate sharply from the trend.

“While neither an SDA [special deposit account]or RRP [reverse repurchase]cut is likely, BSP might consider using other tools to achieve this,” he said.

Metrobank Research’s Reynaldo also sees a steady policy stance by the central bank. “We expect policy rates to remain steady until yearend,” she said.

Cuyengkeng of ING Bank sees inflation hitting a record low, but expects the BSP’s policy stance to remain risk-oriented.

“The BSP’s monetary policy is, thus, likely to remain steady until the end of this year despite record-low inflation for August. BSP’s monetary policy continues to be risk-oriented,” he said.

Calaycay of Accord Capital Securities, who gave the highest August estimate of 0.7 percent to 1 percent, sees the central bank having ample legroom for tweaking its policy rates.

“Insofar as the BSP policy settings are concerned, we think that the MB [Monetary Board] has sufficient legroom to tweak rates if it deems necessary to support the currency.

However over the near term, particularly in the next MB meeting, we don’t think there are enough compelling reasons to change the current settings–unless the Federal Reserve takes action at its meeting later this week,” Calaycay said.

BSP target range
Earlier, the BSP said it was expecting August inflation to average between 0.2 percent and 1 percent.

“Downward adjustments in power rates and domestic oil prices could temper inflation for
the month. Base effects could also be at play,” BSP Governor Amando Tetangco Jr. had said.

In July, headline inflation posted its sharpest drop in two decades to 0.8 percent from 1.2 percent in June and 4.9 percent a year earlier. It was the slowest pace of inflation since 1995.

For the whole of 2015, the central bank projects headline inflation to average 1.8 percent before the rate picks up to 2.5 percent in 2016.

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