MANILA -- The projected normalization of domestic inflation rate made officials of First Metro Investment Corporation (FMIC) forecast further cuts in the Bangko Sentral ng Pilipinas’ (BSP) key policy rates by as much as 50 basis points this year.
In a briefing Tuesday, FMIC president Rabboni Francis Arjonillo said the rate of price increases, which averaged at 2.8 percent in 2019, is seen to average between 2.5 to 2.8 percent this year.
Inflation, which rose to 6.7 percent in September and October 2018 due to supply-side factors, dipped to as low as 0.8 percent last October. It started to normalize last November when it rose to 1.3 percent and to 2.5 percent last December.
The central bank’s policy-making Monetary Board (MB) slashed the BSP’s key policy rates by as much as 75 basis points last year due to deceleration of the inflation rate.
The Board also cut by as much as 400 basis points the banks’ reserve requirement ratio (RRR) to help further support domestic growth and make Philippine banks’ RRR at par with their counterparts overseas.
Arjonillo projects additional RRR cuts by as much as 200 basis points this year.
He said these rate cuts may be offset by inflationary pressures brought about by unanticipated events and geo-political factors.
For one, if the Middle East tension escalates, it may push oil prices in the international market to about USD80 to USD90 dollars per barrel, which will push domestic inflation rate up, he added.
Arjonillo further said investors’ sentiment impacts more on importation since this “will derail us from further expansion.”
The peso is seen to weaken to about PHP53-level to a US dollar this year from its current PHP50-level due to the expected widening of trade deficit, as the government’s infrastructure spending recovers after a drop last year.
Inflows of remittances from overseas Filipino workers (OFWs) are seen to remain stable with a growth of 2 to 4 percent.
As of October 2019, cash remittances grew by 4.6 percent year-on-year to USD24.858 billion.
During the same briefing, FMIC Chairman Francisco Sebastian said external factors are more of a risk for the domestic economy than local factors.
Among these external issues are global upheavals, a rise in interest rates, and the impact of the election in the US.
“I think, the local risk we can manage. As we have done in the past, we will struggle towards growth. We will crawl towards growth. We know what the problems are, we can solve them. We know where we are,” he added.
Meanwhile, the impact of the Taal Volcano eruption on the domestic inflation rate is expected to be minimal.
The University of Asia and the Pacific (UA&P) economist Victor Abola likened the effect to that of a typhoon.
He said while there are people who have been displaced by the disaster and recovery will take months, the impact will “not be very significant” compared to this year’s output.
“This is like one of our isolated typhoons. This one is more localized,” he said, citing that Cavite is not a major agricultural area.
Abola further said there is still a need to get from the Department of Agriculture (DA) reports on the impact on the coffee farmers since the area is known for good coffee. (PNA)
