ANZ maintains 2-year forecasts for Phl inflation

MANILA, Philippines – The Australia and New Zealand (ANZ) Banking Group Ltd. retained its inflation forecasts for the next two years after the Bangko Sentral ng Pilipinas (BSP) decided to keep rates steady amid robust domestic demand and the benign inflation environment.

 Eugenia Victorino, economist at ANZ Bank, said they are maintaining inflation projection of 1.9 percent for this year and three percent for 2017 amid the limited impact of the slowdown in the country’s agriculture output on the overall gross domestic product (GDP) growth.

“We continue to watch the momentum of locally-produced food items as an indicator of headline inflation prints. While the risks of continued contraction in the agricultural sector have a limited effect on overall GDP growth, weakness in agriculture will be more evident in rising inflation,” she said.

After keeping interest rates steady for 14 straight rate-setting meetings since October 2014, the BSP also lowered its inflation forecast for this year.

BSP Deputy Governor Diwa Guinigundo earlier said monetary authorities slashed this year’s inflation forecast to two percent instead of 2.1 percent amid the lower than expected minimum wage hike of P10 instead of P27 this month.

Likewise, he pointed out BSP is looking at a modest increase of P18 in June 2017 and June 2018 instead of the projected adjustment of P29.

Monetary authorities also cited the strengthening of the peso against the US dollar.

On the other hand, the Monetary Board decided to keep its inflation forecast at 3.1 percent next year before easing to 2.6 percent in 2018.

The BSP has set an inflation target range of two to four percent between 2016 and 2018.

Victorino said ANZ Bank is convinced BSP would keep interest rates on hold this year as inflation would remain within the target range of the BSP.

However, she said monetary authorities would raise key policy rates within the first half of next year amid the delay in the interest rate hike by the US Federal Reserve.

“We expect BSP to remain on hold through 2016 and we are pencilling in policy tightening to the first half of 2017.  Average inflation will likely remain within the two to four percent target over the next 12 months and the risk of delays in fed rate normalization is rising,” she added.