The Philippine headline inflation rate is expected to average just slightly below the higher end of the government’s target band this year, according to Standard Chartered Bank.
In a report, it forecasted an average inflation rate of 3.9 percent in 2021, which is faster than the 2.6 percent average in 2020 but within than the government’s aim of 2-4 percent.
Even as the low base from 2020 fades, the banking giant anticipates that due to lower activity, inflation will fall in the second part of the year. Inflation is expected to average 3 percent in the second half, down from 4.4 percent in the first.
According to Standard Chartered, food inflation, which was the main driver of the first-half inflation increase, has moderated due to lower vegetable prices and is likely to remain modest in the second half.
Despite anticipated elevated global crude prices, a high base from 2020 should keep transportation inflation in check in the third quarter, with a further fall expected in the fourth.
“Risks to our inflation forecast are balanced; elevated infections could slow activity and therefore inflation, while higher infrastructure investment and global crude oil prices present upside risks,” the lender noted.
Its inflation forecast is maginally ower than the 4 percent projected by the Bangko Sentral ng Pilipinas (BSP).
With this, Standard Chartered expects the central bank to maintain its accommodative policy for the next several quarters in order to keep economic growth on track.
“Declining inflationary pressure should enable BSP to prioritise growth, especially in the absence of substantial fiscal support. We expect it to keep the policy rate at the current record low.”
The Bangko Sentral kept its overnight borrowing, lending, and deposit rates steady at 2.00 percent, 1.50 percent, and 2.50 percent, respectively.
“Further cuts are unlikely in 2021, in our view; BSP may wait for sentiment to improve before considering further rate cuts in order to maximise the impact of any further easing,” the bank said.
BY MEYNARD DELA CERNA