Local economists backed the Bangko Sentral ng Pilipinas’s (BSP) view of a tamer inflation in October that is expected to push the central bank’s implementation of another tightening measure no earlier than in the first quarter of 2015.
Economists polled by the BusinessMirror showed a median forecast of 4.2-percent inflation for October this year.
The economists’ forecast sits squarely within the central bank’s official target range of 3.7 percent to 4.6 percent for the month. It is also a deceleration from the September’s actual inflation of 4.4 percent.
Economists Joey Cuyegkeng of ING Bank and Nicolas Antonio Mapa of the Bank of the Philippine Islands forecasted a growth of 4.1 percent for the month.
“[The] moderation is likely to continue with lower commodity prices, especially oil prices. Domestic price pressures are easing on a week-on-week basis for rice, meat and other products. Power rates, though, are higher but are unlikely to derail the inflation downtrend,” Cuyegkeng said.
“It had been duly noted that the recent price malaise was on the back of supply-side factors, such [as] crop damage, delays in importation and generation-charge adjustments. Although these have not been totally snuffed out just yet, the importation by the NFA [National Food Authority] to augment rice supply and the free fall seen in global crude prices have helped ease some of the price pressures for the time being,” Mapa also said in a separate response.
Meanwhile, First Metro Investment Corp. Senior Vice President and Treasury Group Head Reynaldo B. Montalbo Jr., as well as Banco de Oro Unibank Inc. Chief Market Strategist Jonathan L. Ravelas, forecasted a 4.2-percent inflation for October, still on lower prices of food and oil.
Barclays Regional Economist Rahul Bajoria and Security Bank economist Patrick Ella, however, sees inflation falling at 4.3 percent for October.
“Commodity prices will remain contained as growth slowdown in the euro zone and slowing Chinese growth will contribute to waning demand for oil. Crude will continue to see lower prices also due to US shale-soil production gains. Overall this should keep domestic inflation contained and returning to normalized 3.7 percent to 4.5 percent range that has been seen in the past 12 to 18 months,” Ella said.
Implications to policy
As such, economists reiterated that the further easing of inflation pressures will give the central bank breathing room to pause policy actions for this year.
“The BSP will likely no longer change policy rates for the balance of the year and resume first quarter of 2015 the earliest,” Ella said.
“Given the current modest growth outlook for the US and the global economy, we expect a pause with the possibility to resumption of tightening in first half, possibly second quarter,” ING’s Cuyegkeng said.
BPI’s Mapa said its next tightening measure will largely be influenced not mainly by rising inflation, but by the Federal Reserve’s hike in its own interest rates.
“Tetangco needed to return to a relatively more neutral stance, as opposed to his ultra-accommodative stance, keeping the powder dry for their inevitable bout with the financial tempest due in 2015 when the Fed begins its rate-hike cycle,” Mapa said.
“Given the disinflationary trend and the slowing of domestic liquidity, we may expect the BSP to stand pat until, perhaps, the second quarter of 2015, when more clarity will be afforded for the timing of the Fed hike cycle,” he added.
The Philippine Statistics Authority will be releasing October’s inflation numbers on November 5.
The central bank, meanwhile, will be having its next policy meeting in December 11. This will be the central bank’s last meeting this year.