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MANILA – Philippine inflation likely settled at 2.9 percent in June, according to DBS.
This is within the Bangko Sentral ng Pilipinas forecast range of 2.5 to 3.4 percent for last month, and is unchanged from the actual rate in May. The National Statistics Office is scheduled to release the June inflation figures on July 5.
BSP Governor Amando M. Tetangco Jr. earlier said lower fuel prices likely offset higher utility rates, vegetable prices and the peso’s depreciation in June. Inflation so far this year has averaged three percent, or at the low end of the BSP’s target range of three to five percent.
“Inflation is not going to be a problem this year and based on its current trajectory, full-year inflation will only average at the lower end of the central bank’s three to five percent target,” DBS said in a research note.
“In fact, for the rest of the year, inflation is unlikely to breach the four percent mark. Thus far, the country has been enjoying a sweet spot of strong growth and low inflation,” the Singaporean lender said, referring to the Philippines’ better-than-expected 6.4 percent economic expansion in the first quarter and the year-to-date inflation.
“We think that the overnight borrowing rate can be kept on hold for the rest of this year to bolster the domestic economy. Notably, real rates are still positive, indicating that BSP has some wriggle room to maneuver in the event of a sharp slowdown in external demand,” DBS said.
The BSP has kept its key policy rate at a record low of four percent so far this year, and has indicated no change in the near term given the first-quarter growth spurt and the uncertain external environment brought about by the euro zone debt crisis and the slowdown in the world’s top two economies, the US and China.
DBS said another factor weighing in favor of a stay in the BSP’s current policy settings is the Philippines’ external payments position, which “has been holding up well” given “no immediate constrains from portfolio flows.”
Foreign portfolio investments plunged 68.1 percent to net inflows of $106 million last May from $333 million in April. Portfolio funds represent money that foreigners invest in Philippine financial instruments such as stocks of publicly-listed companies and government bonds.
Despite the drop in portfolio inflows, the country’s balance of payments was still in surplus of $138 million in May, and $1.3 billion in the first five months of this year.
The BSP recently revised downwards its BOP forecast to a surplus of $2.6 billion from an earlier estimate of $2.9 billion on account of the euro zone crisis.
The BOP is a summary of a country’s economic transactions with the rest of the world, with a surplus indicating foreign exchange inflows outpacing outflows.
Sustained surpluses build up the country’s gross international reserves, an ample amount of which props up the peso and keeps domestic inflation at bay.
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