By Joann Santiago
MANILA, Sept. 4 (PNA) — DBS Bank forecasts the August 2014 rate of price increases in the Philippines to hit five percent, the upper end of the government’s three to five percent target for the year.
In a research note, one of the leading financial institutions in Asia said hitting the five percent level last August would be the first time for the domestic inflation rate to reach this level since the latter part of 2011.
”Pressures on the supply-side continue to dominate, stemming from food and energy prices. And on the demand-side, resilient consumption growth means underlying inflationary pressures also remain well supported,” it said.
Last July, inflation almost hit the upper end of the target for the year after it reached 4.9 percent on supply-side factors.
This brought the average for the seven –month period to 4.3 percent.
The research note said that further rise in the inflation target is not expected to make the Bangko Sentral ng Pilipinas (BSP) “panic.”
”For we are likely to be near the peak of inflation at this juncture. Indeed, we still expect CPI (consumer price index) inflation to ease back towards four percent in 2015,” it said.
On the other hand, the research note cited that “the August CPI number is likely to justify more policy tightening by the central bank.”
It also noted that “absorbing excessive liquidity is still warranted, especially noting that loan growth remains strong at 20 percent in 2Q14 (second half of 2014), despite the marked pullback seen in fiscal spending in the period.”
”If anything, the central bank prefers to make these policy adjustments from a position of strength,” it said.
The report added that after the improvement in domestic growth in the second quarter of the year to 6.4 percent from quarter-ago’s 5.6 percent “the August CPI print is likely to be supportive of the central bank’s currency policy leaning.”
The BSP has been implementing tightening moves since the start of the year through the total of 200 basis points hikes in banks’ reserve requirements, the hike in special deposit account (SDA) facility’s interest rate by 25 basis points to 2.25 percent as well as the same level of increase in the central bank’s key rates.
Last July, the central bank’s policy-making Monetary Board (MB) increased the BSP’s key rates to ensure that inflation, particularly in 2015, would stay within the two to four percent target for that year.
To date, the BSP’s overnight borrowing or reverse repurchase (RRP) rate is at 3.75 percent and the overnight lending or repurchase (RP) rate is at 5.75 percent.
The adjustment in the central bank’s key rates was made after the Board cut it to record-low in October 2012 on back of low inflation environment and strong domestic growth. (PNA)