Inflation May Still Be High in 2019 - Analysts

Manila Bulletin, August 3, 2018 | Go to article overview

Inflation May Still Be High in 2019 - Analysts


By Lee C. Chipongian

Inflation could still be on the high side of the target range in 2019, in the mid-three percent to a peak of four percent, which would present a similar environment of back-to-back rate hikes and reduction in banks' reserve ratio.

Economist Chidu Narayanan for Standard Chartered Bank said the market has been prepared for some time for an eventual aggressive response from the Monetary Board - "the BSP has put off hiking rates too much or too soon."

The central bank is unwavering in its messaging that the 2019 inflation will be within the target of two-four percent. However, Narayanan said the rate could be higher. "We expect inflation will remain high in 2019, albeit lower than in 2018," he noted.

While the BSP forecasts 3.3 percent inflation in 2019 - and this could change on August 9 - the Asia Pacific Consensus Forecasts estimates 3.7 percent, while both Oxford Economics and the Asian Development Bank forecasts 3.9 percent. The International Monetary Fund (IMF) forecasts 3.8 percent average for 2019 versus the government target of two-four percent.

Narayanan said that just as he has forecasted earlier, the BSP "would be forced to hike rates this year on very loose monetary conditions exacerbated by rising inflation, weak currency and still high credit growth... I expect inflation to edge up further in July and August, forcing the BSP to hike rates by 25 bps at its August 9 meeting."

He added that the BSP would have to pair a rate hike with a cut in reserve requirement ratio (RRR) next year. "My forecast for earlier this year was for RRR cuts to be delivered along with rate hikes in the first quarter," said Narayanan. "Standalone RRR cuts risks exacerbating upside pressure to inflation - RRR cuts would have to come with further rate hikes to help reduce inflationary pressures."

ING Bank economist Joey Cuyegkeng said the issue in a rate hike with an RRR reduction is it brings market confusion. …

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