Barclays hikes 2011 inflation forecast to 4%

MANILA, Philippines - London-based Barclays Capital revised upwards its inflation forecast for the Philippines to four percent this year instead of 3.6 percent on the back of rising energy prices.

Barclays Capital economist Prakriti Sofat said in a research note that the investment bank sees a higher inflation this year but this would still fall within the target range of three percent to five percent set by the Bangko Sentral ng Pilipinas (BSP).

“Looking ahead, we believe the near-term risks to the energy component of the CPI are biased to the upside owing to elevated oil and coal prices. For the Philippines, we are revising up our 2011 average inflation forecast to four percent from 3.6 percent previously,” Sofat added.

She pointed out that inflation would likely average 3.5 percent in the first quarter, 4.3 percent in the second, 4.4 percent in the third, and 3.8 percent in the fourth quarter of the year.

The BSP sees inflation averaging 3.6 percent this year and three percent next year or well within the target range of three percent to five percent between 2011 and 2014. Inflation inched up to 3.8 percent in 2010 from 3.2 percent in 2009.

Given the relatively benign inflation figures, Sofat said Barclays Capital believes that monetary authorities are likely to remain on the sidelines.

“However, given the imported nature of inflation – energy and also food – we believe policymakers will have a bias to use currency appreciation to lean into imported price pressures,” she said.

According to her, no less than BSP Governor Amando M. Tetangco Jr. indicated that the central bank would continue to closely monitor global and domestic developments, particularly policy actions in major economies, changes in global growth patterns and shifts in investor sentiment, to gauge the need to make adjustments to the BSP’s current monetary policy stance.

The London-based investment bank sees the BSP’s Monetary Board adjusting upwards its key policy rates by 25 basis points starting the third quarter.

“We expect any rate normalisation to only begin in the second half of 2011, when inflation heads towards 4.5 percent, and we continue to expect a 25 basis point hike in the third quarter,” she explained.