Private economists cut inflation forecast to 3.5%

MANILA, Philippines - A survey conducted by the Bangko Sentral ng Pilipinas (BSP) showed that economists of foreign and local private banks slashed anew their inflation forecast for the Philippines despite soaring oil prices and possible second round effects such as higher food prices, transport fare hikes, and clamor of wage increases.

Based on the central bank’s Private Sector Economists’ Inflation Forecast for the first quarter of 2012, inflation would average 3.5 percent instead of 4.2 percent this year and fall within the target of three percent to five percent set by the BSP

The survey results showed that economists expect inflation to average 3.3 percent in the second quarter and 3.6 percent in the third from 3.1 percent in the first quarter of the year.

 “Analysts noted that the tepid global economic activity and the relative firmness of the peso against the dollar will help cushion inflationary pressures going forward,” the BSP said.

It warned, however, that higher global oil prices amid persistent tensions in Iran are expected to remain an upside risk to inflation.

Based on the probability distribution on the forecasts provided by 16 out of 20 respondents, there is a 42.9 percent chance that the average inflation for 2012 could settle within a range of 2.1 percent to three percent.

For this year, Bangkok Bank sees inflation averaging 4.5 percent followed by Maybank – ATR Kim Eng Securities with 4.3 percent, BDO Unibank with four percent, Land Bank of the Philippines with 3.9 percent IDEA at 3.8 percent, Goldman Sachs and Nomura of Japan with 3.7 percent, MIB with 3.6 percent as well as the Metrobank Group and University of Asia and the Pacific with 3.5 percent.

Union Bank of Switzerland and Rizal Commercial Banking Corp. (RCBC) see the country’s inflation averaging 3.4 percent followed by China Banking Corp. as well as Hong Kong and Shanghai Banking Corp. (HSBC) with 3.3 percent.

Furthermore, Bank of America forecasts inflation to average 2.9 percent this year followed by Philippine Equity Partners with 2.9 percent, Bank of Commerce at 2.8 percent, and Deutsche Bank with 2.7 percent

For 2012, the survey showed that economists decided to retain their average inflation forecasts at 4.1 percent.

 “Based on the results of the BSP’s survey of private economists for March 2012, inflation is expected to be within the three percent to five percent target range for both 2012 and 2013,” the central bank stated in the Inflation Report for the first quarter of 2012.

After easing for five straight months since October last year, inflation kicked up to three percent in April from 2.6 percent in March on the back of soaring oil prices in the world market as well as higher food prices.

The BSP slashed interest rates by 50 basis points so far this year due to benign inflation outlook and fragile global economic growth. The body reduced rates by 25 basis points last January 19 and by another 25 basis points last March 1 bringing the overnight borrowing rate back to a record low of four percent and the overnight lending rate at six percent.

However, monetary authorities kept interest rates steady during its last policy rate setting meeting last April 19 to assess the impact of the earlier rate cuts on the domestic economy.