HSBC sees inflation hitting high end of BSP target in ’14

MANILA, Philippines - Biritsh banking giant Hong- Kong and Shanghai Banking Corp. (HSBC) said it expects Philippine inflation to reach up to five percent next year, due to the effects of Super Typhoon Yolanda and the tapering of the quantitative easing (QE) program by the US Federal Reserve.

The forecast, however, falls at the  high end of the Bangko Sentral ng Pilipinas (BSP) target of between three to five percent.

HSBC said much depends on how the government supports the recovery and reconstruction of the typhoon-ravaged areas, and the collateral damage on agriculture and industry.

Those conditions may force the BSP to increase policy rates next year to four percent. It is expected to settle at 3.5 percent this year, similar to the rates in 2012.

HSBC Philippines president and chief executive officer Jose Arnulfo Veloso said the BSP would likely keep rates to continue to support growth.

“However, a rate hike looks to be on the cards in 2014 in order to temper inflation,” Veloso said.

Gross domestic product (GDP) in the third quarter of 2013 will remain in the 6.8 percent to 6.95-percent range as it continues to carry the momentum of the first semester growth, which averaged 7.6 percent.

The last quarter will be a challenge, through with estimates ranging between six to 6.5 percent. Initial estimates place economic growth at 7.1 percent for the whole of 2013.

But HSBC saidit made a slightly lower growth outlook for 2014 at 5.8 percent, taking into consideration the negative impact of Yolanda, the Bohol earthquake, the Zamboanga siege, the QE tapering, and a still sluggish eurozone.

The main industries affected by Yolanda were sugarcane, corn and rice in the Eastern Visayas, which would likely result to drag GDP by 0.2 percent.

Eastern Visayas accounts for two percent of GDP.

 â€œWe expect total damage to come in at around 0.5 percent of GDP, slightly higher than the government’s forecast of 0.34 percent of GDP. The larger impact will be on inflation,” Veloso said.