Singapore-based DBS sees higher PHL inflation

Singapore-based DBS Bank has raised its 2011 inflation forecast to 5.6 percent from 4.4 percent, expecting higher oil and commodity prices to trigger higher interest rates. In a research note, the investment bank also raised its inflation forecast for next year to 5.2 percent instead of 4.7 percent. The bank said it expects the inflation rate to accelerate further in the coming months after posting a steep rise to 4.3 percent in February from 3.6 percent in January. The Bangko Sentral ng Pilipinas (BSP) expects the 2011 inflation rate to go faster than 4.4 percent, but still within its inflation target of 3 to 5 percent for 2011 to 2014. For 2012, the BSP predicts an inflation of 3.4 percent, a lower revision of the previous 3.5 percent. Two weeks ago, the sustained build-up in inflation pressures prompted the central bank’s Monetary Board to raise interest rates by 25 basis points after keeping them at record lows since July 2009. The revision has brought the overnight borrowing rate to 4.25 percent from a record low 4 percent, and the overnight lending rate to 6.25 percent from 6 percent. "BSP is putting its 2011 and 2012 inflation forecasts under review, and takes the view that the global recovery is confirmed," the bank explained. "Inflationary pressures have intensified to an extent that the central bank has to act to keep inflation expectations well anchored," the bank added. Expanding GDP The DBS also projects a 5.5-percent expansion in the Philippines’ gross domestic product (GDP), up from the previous 5 percent, but maintained the GDP growth forecast for 2012 at 5.2 percent. "With full-year real GDP growth of 7.3 percent last year and expected to be similarly strong this year, the expansion in aggregate demand is strong, which suggests that the risk of pass-through from commodity prices to broad inflation indexes is high," DBS said. Through the Cabinet-level Development Budget Coordination Committee (DBCC), economic managers are now reviewing 2011’s macroeconomic and monetary targets amid the continuing tensions in the Middle East and North Africa, and the devastation in Japan. The DBCC has set this year’s GDP growth target at 7 percent to 8 percent. PE/VS, GMA News