Metrobank lowers 2011 inflation forecast to 4.4%

MANILA, Philippines - The Metrobank Group of taipan George SK Ty has lowered anew its inflation forecast due to worries over a slowing global economy amid uncertainties in advanced economies led by the US and the sovereign debt crisis in Europe.

In its yearend 2011 economic outlook and forecasts entitled “The Economic Weather Report,” the Metrobank Research Department said it has slashed its inflation forecast to 4.4 percent instead of five percent this year as prices of commodities have eased in previous months.

“Research sees full-year average inflation to come in at 4.4 percent, down from the previous forecast of 5.0 percent,” Metrobank stressed.

The bank said oil prices have decreased since June, dropping to its lowest level in six months at the start of August and market participants are expecting slightly lower oil prices in the medium term.

Furthermore, upward pressure on food prices stemming from robust demand have been dampened by good crop harvests in North America and Central Asia. Base metal prices slightly declined amid marked concerns about weakening global demand while gold prices moved to new highs on strong investment demand.

It added that the average inflation rate is expected to remain in line with the Bangko Sentral ng Pilipinas target of three percent to five percent as the upward pressure on consumer prices has eased given the weaker outlook for the global economy and well-behaved inflation expectations.

“The upward pressure on consumer prices has eased given the weaker outlook for the global economy and well-behaved inflation expectations, thus the average inflation rate is expected to remain in line with the BSP target,” Metrobank said.

It pointed out that the risks are clearly to the downside as the outlook for advanced economies is for a continuing but weak and bumpy expansion.

Latest data from the National Statistics Office (NSO) showed that inflation averaged 4.3 percent, in the first nine months of the year from 4.1 percent in the same period last year as consumer prices slightly kicked up to 4.6 percent in September from 4.3 percent in August due to higher water and power rates as well as rising fuel prices.

Last Sept. 8, the BSP’s Monetary Board lowered anew the central bank’ inflation forecasts for this year and next year due to lower than expected actual inflation for the months of July and August as well as lower global economic growth. It lowered the inflation forecast to 4.46 percent instead of 4.7 percent this year and to 3.4 percent instead of 3.74 percent next year.

During the meeting, the MB left key interest rates unchanged for the third consecutive policy rate-setting meeting on the back of the lower- than-expected economic growth in the second quarter of the year as well as the benign inflation outlook amid stable oil and food prices in the world market.

The BSP raised interest rates by 25 basis points last March 24 and by another 25 basis points last May 5 as a preemptive move to keep inflation expectations well anchored amid the escalating price of oil in the world market. The overnight borrowing rate is currently pegged at 4.50 percent while the ovenight lending rate is 6.50 percent.

The MB however, kept interest rates steady last June 16 and July 28 but raised the reserve requirement ratio for banks by a cumulative 200 basis points to 21 percent from 19 percent to siphon off P70 billion from the financial system and curb additional inflationary pressures arising from excess liquidity brought about by strong inflow of foreign capital.

“While full-year average inflation is close to the high end of the BSP’s target of three percent to five percent, the monetary authorities will likely be cautious about raising policy rates given the uncertain global economic outlook and weaker than expected domestic economic growth,” Metrobank said.

Meanwhile, Metrobank further scaled down its gross domestic product (GDP) growth forecast to 4.2 percent instead of five percent this year due to weaker-than-expected first half outcome as well as the deteriorating outlook for advanced economies.

“While global downside risks could hamper our growth prospects, the domestic economy is seen to remain resilient to financial volatility as it had during the global economic downturn in 2008-2009,” the bank said.

The country posted its strongest economic growth in 34 years as its GDP expanded by 7.6 percent last year after barely escaping recession in 2009 when its GDP growth slackened to 1.1 percent from 3.8 percent in 2008 due to the full impact of the global economic meltdown.

Economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC) recently lowered its GDP growth target to 4.5 percent to 5.5 percent instead of the revised five percent to six percent this year after the GDP growth slackened to four percent in the first half of the year from 8.7percent in the same period last year due to weak global trade and heavy underspending by the government.

Show comments