ANZ raises Philippine inflation forecast to 3.8% this year

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ANZ Research hiked its inflation forecast for the Philippines to 3.8 percent this year, from 3.5 percent previously, as risks may drive inflation up to above the central bank's two to four percent target in the coming months.

If realized, 2024 inflation will be lower than the six percent average last year, but higher than the 3.6 percent full-year forecast of the Bangko Sentral ng Pilipinas (BSP).

In its quarterly report, ANZ said the monthly change in headline inflation averaged 0.6 percent in January to February.

'If this momentum is sustained, annual inflation will rise above four percent from the next quarter. We estimate the monthly momentum will need to halve if annual inflation is to remain in the official target range,' ANZ said.

'In part, this inflation problem is due to negligible policy intervention in the food and energy markets,' it added.

Inflation quickened to a two-month high of 3.4 percent in February from 2.8 percent in January, amid faster upticks in food prices and transport costs.

To tame inflation, the BSP has tightened borrowing costs by 450 basis points between May 2022 and October 2023, bringing the key rate to a near 17-year high of 6.50 percent. The Monetary Board has kept interest rates on hold after a 25-basis-point, off-cycle hike in October 2023.

ANZ Research expects the BSP to only start its easing cycle in December, by cutting the key policy rate by 50 basis points (bp) to six percent before the year ends.

The Philippine central bank is also seen to cut rates by a total of 100 bp next year.