MANILA, Philippines — Swiss investment bank UBS expects Philippine inflation to ease below three percent in the third quarter after falling within the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP) on easing oil and food prices within the next few months.
Edward Teather, UBS senior economist for the Association of Southeast Asian Nations, said in a press conference inflation is likely to fall to around three percent by end 2019 with the government assistance in stabilizing food prices.
“We think inflation could be below three percent in the third quarter,” he said.
Inflation accelerated to 5.2 percent last year from 2.9 percent in 2017, exceeding the BSP’s two to four percent target, due to elevated global oil and food prices as well as the weak peso.
“A big reversal in rice inflation, that should be a relief to investors in the Philippines and help bring yields down,” Teather said.
According to Teather, these are all good signs for consumers as the bank foresees continued support from the government in embracing Philippines’ infrastructural story and future growth potential.
“The country is also equipped with alternative sources of income rise such as tourism revenues, which would be positive for its economic outlook in the long run,” he said.
UBS sees the Philippines recording a gross domestic product (GDP) growth of above six percent after easing to 6.2 percent last year from 6.7 percent in 2017.
“We believe that we will see further stabilizing in the Philippines economy,” Teather said.
Despite easing inflation, the economist expects the BSP to keep interest rates unchanged this year after a tightening cycle that saw interest rates rise by 175 basis points last year to prevent inflation from spiraling out of control.
While inflation is seen easing back to within the BSP’s two to four percent target, Teather said the US Federal Reserve may hike benchmark rates in the second half of the year.
“We are not, at this stage, expecting of course rate cuts The reason why we don’t expect policy rate cuts is when inflation goes below three percent that happens to be exactly the same time we expect the Federal Reserve in the US to return to raising interest rates after putting policy rates on hold in the interim,” he said.