Metrobank sees higher inflation this year

MANILA, Philippines - The Metrobank Group of taipan George SK Ty sees inflation accelerating this year on the back higher commodity prices brought about by the global economic recovery.

Metrobank said in its economic outlook and forecast entitled “The Economic Weather Report” that average inflation would kick up to 4.8 percent this year from 3.2 percent last year.

“Looking ahead into 2010, prices of many commodities are likely to increase further. The demand side should generally be the main source of upward pressure, as global activity is widely expected to expand,” the country’s second largest bank said.

It added that commodity prices rallied in 2009 on increased demand and signs of global economic recovery, with oil soaring and gold striking record highs, while copper and sugar surged.

Back in 2008, crude oil and base metals had forged historic peaks on supply woes, before tumbling as the global financial crisis and recession sparked demand worries.

“With inventories remaining above average for many commodities and substantial spare capacity in many commodity sectors, the upward pressure is likely to remain moderate for some time, unless much stronger-than-expected global growth or other surprises lead to a rapid drawdown of these buffers,” the bank said.

Metrobank’s inflation forecast was well within the inflation target of 3.5 percent to 5.5 percent set by the Bangko Sentral ng Pilipinas (BSP) this year.

“As the global economy recovers, consumer prices are expected to stabilize at a higher level, but are expected to remain within the BSP’s inflation forecast of 3.5 percent to 5.5 percent this year,” the bank said.

Metrobank explained that risks are tilted on the upside this year as both fuel and food prices could spike anew as the global recovery gets on firmer ground and due to El Niño-related supply shocks that may cause upward pressure on food and overall prices.

It added that the BSP’s Monetary Board would continue to keep benchmark interest rates on hold until the second half of the year due to the weak but improving domestic economy.

The BSP slashed its key policy rates by 200 basis points between December of 2008 and July 2009 as part of its easing cycle to cushion the impact of the global financial crisis on the domestic economy.

This brought the overnight borrowing rate to a record low of four percent and the overnight lending rate at six percent.

Metrobank said the country’s gross domestic product (GDP) would likely expand by 3.7 percent this year or slightly higher than the government’s growth forecast of 2.6 percent to 3.6 percent.