Inflation seen still below 1% in August

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) sees inflation falling below one percent in August due to cheaper power rates as well as the steady decline in oil prices.

BSP Governor Amando Tetangco Jr. said inflation is likely to settle between 0.2 and one percent in August after easing to a new record low of 0.8 percent in July.

“August inflation could be within 0.2 to one percent range, as continued downward adjustments in power rates and domestic oil prices could temper inflation in the month,” he said.

He added that base effects could also be at play.

Early this month, the BSP lowered its 2015 inflation forecast to 1.9 percent instead of the 2.1 percent projection made in June on the back of declining food and oil prices.

The central bank, however, retained the 2.5 percent inflation forecast for next year.

Tetangco said inflation would likely pick up and fall within the two to four percent target of the BSP next year.

“For next year, however, we see inflation moving up to within target. Given the rebound in the second quarter GDP from the first quarter and the lags of monetary policy, there may be no need as yet to adjust policy,” he added.

The BSP chief explained monetary authorities would continue to monitor domestic and external developments such as the prolonged El Niño, the impending interest rate increase by the US Federal Reserve, the global economic slowdown, the stock market crash in China, among others.

“We are on the lookout for developments in oil prices, manifestations of El Niño, and financial market volatility as part of our surveillance to see if there is a need to adjust the stance of policy,” Tetangco said.

ING Bank Manila chief economist Joey Cuyegkeng said monetary authorities are likely to put on hold any interest rate adjustment in the near term.

“Monetary policy settings are likely to remain steady in the very near term while BSP remains focused on possible risks to inflation and financial sector stability,” Cuyegkeng said.

Cuyegkeng said the BSP is likely to report a modest liquidity growth for July amid the robust demand for corporate debt issuances and steady benchmark government yields.

He said upside inflation risks from El Niño continue to preoccupy BSP assessment and the central bank’s inflation outlook over the policy horizon.

 “Deflation risk though is lurking as oil prices remain soft and near seven year low. Global commodity prices have also softened with China’s economic slowdown,” Cuyegkeng added.