MANILA, Philippines - Australia and New Zealand Bank (ANZ) has cut its average inflation outlook for the Philippines to 2.7 percent for this year from its original forecast of 3.1 percent.
The bank noted that headline inflation has been undershooting the Bangko Sentral ng Pilipinas (BSP) target for the past five months. “We see the risk of average inflation falling below the central bank’s three to five percent target range for the 2013-2014 policy horizon,†it said.
However, ANZ said it was cautious over the sudden surge in money supply (M3) growth, which led it to revise upwards its inflation forecast for 2014 to 3.6 percent from an earlier projection of 3.4 percent.
Based on the revised monetary aggregates, M3 stood at P6.03 trillion, growing a record 30.1 percent year-on-year.
But the BSP maintains that the increase in money supply is temporary, attributing it to the release of funds from the special deposit account (SDA) facility.
Under a BSP regulation, banks are required to completely unwind the SDA placements under agency accounts and client-directed investment management activities by end-November.
Thus, SDA holdings have declined to P1.6 trillion ($36.8 billion from P1.9 trillion at end-April.
Also, the decision to keep policy rates unchanged reflects the BSP’s inflation outlook, as monetary authorities aim to safeguard non-inflationary economic growth.
The BSP revised its average inflation forecast for 2013 to three percent (down from 3.3 percent), for 2014 to 3.9 percent (down from four percent), and kept 3.5 percent in 2015.
Despite the revision, BSP’s inflation outlook remains within its three to five percent target band for 2013-2014 and two to four percent in 2015-2016.