InterAksyon.com means BUSINESS
MANILA - The Philippine central bank may hold key interest rates steady during its policy meeting next month as oil and food prices have begun climbing, which could accelerate inflation toward the end of the year, HSBC said.
In its latest research note, the London-based bank said headline inflation in the past months had been benign with the help of low transportation costs. This, however, changed with the recent gas price hikes and the rise in food prices after the southwest monsoon floods disrupted supply chains.
Prior to this, core inflation was on the rise, breaching the middle of the Bangko Sentral ng Pilipinas' inflation target of three to five percent amid high domestic demand.
"That means that the recent increase in oil and food prices would push headline inflation up significantly, especially towards year-end when an unfavorable base effect also comes into play," HSBC said.
When Philippine monetary authorities meet on September 13, they may decide to hold key interest rates steady, depending on, among others factors, the inflation numbers on August, HSBC said.
In July, headline inflation grew by 3.2 percent from a year ago.
If the headline figure stays at the lower end of the BSP's inflation target and global oil prices start to descend, then the central bank may have to loosen its monetary policy stance, HSBC said.
Strong remittances and more government spending are boosting domestic demand, while interest rates have dipped to a historic low of 3.75 percent, lending to another rate cut given and the ample liquidity in the system, HSBC said.
The influx of dollars into the country and the sterilization cost that accompanies it would prompt the BSP to do another rate cut even as "recent hikes in commodity prices and floods in Manila suggest otherwise," the bank said.
Remittances for the first half of the year expanded by 5.1 percent to US$10 billion. HSBC said that year-on-year growth points to a slowdown because of unfavorable base effect.
"Overseas Filipinos are increasing the pace by which they are sending money home, continuing to support the consumption-driven economy," the bank said.
So even if the economies in the eurozone are going on a downward spiral, Filipinos elsewhere continue to send money home. HSBC said this is crucial to the country as exports take a hit because of the weak global demand.
InterAksyon.com means BUSINESS
BUSINESS NEWS
