AmBank Group sees Philippine inflation at 1.5% this year

MANILA, Philippines - AmBank Group of Malaysia expects inflation to settle below the target set by the Bangko Sentral ng Pilipinas (BSP) this year, giving more reason for monetary authorities to keep interest rates steady.

Anthony Dass, chief economist at AmBank, said inflation is likely to average 1.5 percent this year or below the BSP target of between two and four percent.

Inflation remained at a record low of 0.4 percent in October, bringing the average inflation to 1.4 percent in the first 10 months due to stable food prices and cheaper utility rates.

“Low inflation to a large extent is due to the sharp drop in oil prices late 2014. It has put downward pressure on transport costs and utility bills,” Dass said.

However, he explained the impact of the protracted El Niño weather conditions on food prices and utility rates would push inflation upwards next year.

“Going forward, the impact of El Niño, favorable supply conditions, and possible higher utility rates is expected to add some upwards pressure on inflation, likely to reach close to the central bank’s projection of 1.6 percent in 2015. We expect inflation to hover around 1.5 percent in 2015 and 2.5 percent in 2016,” he added.

After raising policy rates by 50 basis points last year, the benign inflation environment and the robust domestic demand allowed the BSP’s Monetary Board to keep interest rates steady for nine straight policy-setting meetings.

Since October last year, the overnight borrowing rate was pegged at four percent while the overnight lending rate is at six percent. The special deposit account rate is currently at 2.5 percent.

“Looking ahead, we think the central will continue to adopt the wait-and-see attitude,” Dass said.