Philippine inflation may hit 5.4% in 2011 — Credit Suisse

Inflation in the Philippines will likely reach 5.4 percent this year, breaching the 3-percent to 5-percent target set by the central bank, according to the Switzerland-based Credit Suisse. This will possibly prompt the policy-setting Monetary Board to raise its policy rates by 100 basis points, the investment bank said in a research note. In February, the country’s inflation surged to 4.3 percent — highest in nine months — on rising food and housing cost, National Statistics Office records showed. Inflation averaged 3.9 percent in the first two months of the year. Due to the mounting cost of global oil and food prices, the central bank raised its inflation forecast for the country to 4.4 percent, from 3.6 percent, this year. This projection is expected to be revised upwards during a Monetary Board meeting on March 24. Despite the global development, Devika Mehndiratta, Credit Suisse vice president for economics market research unit, said inflation in the Philippines would not go up to alarming double-digit level. Prices of rice have remained flat and the increase of transport fare has not fully followed fuel price hikes, the economist said. Raising policy rates As it sees inflation going up, Credit Suisse apparently believes that the country’s key rates would go up by 100 basis points this year. “We now expect 100 basis points of rate hike in 2011, but expect these to be implemented in tentative 25-basis-point steps," Mehndiratta said. The Monetary Board has pegged the overnight borrowing and lending rates at 4 and 6 percent, respectively, since July 2009. Bangko Sentral ng Pilipinas Gov. Amando Tetangco Jr. had said the scope for maintaining policy rates has narrowed due to the continued build up in inflation. He had hinted a possible rate hike during the second Monetary Board meeting on March 24. Philippine economy growth The investment bank also raised its forecast for the country’s economic growth in gross domestic product terms. Mehndiratta sees the Philippine economy to accelerate by 4.6 percent — from 4 percent — this year as the Southeast Asian nation posted a better-than-expected growth in the fourth quarter of last year. Last year, the country’s economy grew to 7.3 percent, the fastest growth in 34 years. Moreover, Credit Suisse said it would closely monitor the impact of the mega-quake and tsunami that hit Japan, one of the Philippines’ major trading partners. “We would watch out for any near-term headwinds from the recent calamity in Japan, given that it is a leading export destination for Philippine exports," Mehndiratta said. — JE, GMA News