MANILA, Philippines - New York-based Global Source Partners cut its inflation forecast for this year to 3.4 percent from 3.6 percent after Malacañang allowed the National Food Authority (NFA) to import rice from the private sector to augment the country’s buffer stock for the lean months.
In its latest quarterly report on the Philippines titled “Setting in,” the think tank said it is more confident of a benign inflation outlook as President Duterte changed his view on rice importation.
“We and other concerned groups had earlier flagged an impulsive no rice imports announcement as a risk to inflation, which brought the issue to the fore leading to a decision to allow the private sector, which can better assess market conditions, to import rice,” it said.
The National Food Authority (NFA) Council earlier approved the importation of rice via government to private sector scheme, a policy shift from government to government rice importations that was prone to corruption.
Agriculture Secretary Emmanuel Piñol previously called for the importation of 25,000 metric tons of rice to serve as the country’s buffer stock for the lean months through the government-to-government scheme.
Inflation was steady at 3.4 percent in April, bringing the average inflation in the first four months of the year to 3.2 percent, slightly above the two to four percent target set by the Bangko Sentral ng Pilipinas for 2017.
Global Source Partners sees inflation steady at 3.4 percent for 2018.
“Likewise, as noted in our last report, the staggering of increases in petroleum excise taxes over three years would help keep inflation impacts manageable,” it added.
The BSP’s Monetary Board kept interest rates steady last May 11 as inflation remains well anchored to the target over the policy horizon. Authorities also kept the inflation forecast at 3.4 percent for this year and three percent for next year.
The BSP also noted the balance of risks surrounding the inflation outlook continues to be tilted toward the upside, given the transitory impact of the proposed tax reform program as well as possible further adjustments in transportation fares and electricity rates.
Global Source Partners also revised its foreign exchange forecast to 51.36 to $1 instead of 52.5 to $1 this year and to 53.19 to $1 instead of 53.3 to $1 for next year.
“Latest financial market information also shows more firmness in financial prices, with the peso hovering around P50/$ since April, on average stronger than in 1Q17, and interest rate increases moderating after the jumps in March in reaction to the US Fed’s 25-basis point rate hike,” it said.
The think tank said local markets have also benefited from renewed capital inflows in April, seen as well in stock price increases, as short-term global players bet that at the earliest, the US Fed would deliver another rate hike in June yet.
Global Source Partners said the country’s gross domestic product would grow by 6.5 percent this year before easing to 6.3 percent next year. The GDP expansion eased to a weaker-than-expected 6.4 percent in the first quarter from 6.6 percent in the fourth quarter due to disappointing private consumption.
Key public sector reform initiatives such as improving the transport agency’s absorptive capacity for implementing infrastructure projects could definitively propel growth higher, the think tank said.