DBS, Barclays see May inflation at lower end of BSP's 3-5% target

MANILA, Philippines - DBS Bank Ltd. of Singapore and London-based Barclays Capital Ltd. are convinced that inflation last month fell within the lower-end of the full-year three percent to five percent target of the Bangko Sentral ng Pilipinas (BSP) amid the easing oil prices in the world market.

DBS said inflation last month was likely unchanged from three percent recorded in April as the price of oil in the world market have significantly fallen over the last few weeks.

“Inflation is unlikely to be a problem in the coming quarters amid the specter of slowing global growth. Oil prices, which have been the main driver of inflation over the past year, have fallen significantly over the last few weeks as the Eurozone crisis worsens,” the investment bank said.

DBS also cited the absence of any immediate threat of rising food prices due to ample rice output in the first half of the year.

It pointed out that inflation this year would be comfortably within the BSP target of three percent to five percent and that the Monetary Board would keep interest rates at record lows until the first quarter of next year.

DBS said the inflation would remain manageable as the stronger-than-expected gross domestic product (GDP) growth in the first quarter of the year is unlikely to be sustained.

The country’s GDP growth zoomed to 6.4 percent in the first quarter of the year from the revised four percent in the fourth quarter of last year due to robust domestic demand, higher government spending, and recovering exports.

“A robust first quarter GDP growth number of 6.4 percent year-on-year may raise concerns of demand-pull inflation. However, the growth momentum is unlikely to be sustained in the second half and price pressures should remain manageable,” DBS said.

On the other hand, Barclays said in its Emerging Markets Ahead report that inflation likely climbed to 3.2 percent in May from three percent in April amid the appreciation of the peso against the dollar.

“Despite some peso depreciation, we look for inflation to remain broadly contained, given well-anchored inflation expectations and the recent fall in commodity prices,” Barclays said.

The BSP sees inflation last month averaging between 2.5 percent and 3.4 percent. The National Statistics Office (NSO) is scheduled to release inflation for the month of May today.

Inflation climbed to three percent in April from 2.6 percent in March bringing to three percent the average inflation in the first four months of the year despite the strong GDP growth in the first quarter.

The Cabinet-level Development Budget Coordination Committee (DBCC) sees GDP growth accelerating to a range of five percent to six percent after slackening to 3.9 percent last year from 7.6 percent in 2010 due to weak global growth and government underspending.

The growth was achieved as the BSP managed to keep inflation at bay. So far, the BSP’s Monetary Board has slashed interest rates by 50 basis points bringing the overnight borrowing rate back to a record low of four percent and the overnight lending rate at six percent.