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ECONOMISTS see inflation settling at 3.3 percent this year, the Bangko Sentral ng Pilipinas (BSP) said, higher than its 3.0-percent full-year forecast but still within the 2.0-4.0 percent target.
In the First Quarter Inflation Report released on Friday, the central bank said the latest figure was a decrease from “4.1 percent in the December 2018 survey.”
Analysts expect downward pressures to dominate the risks to the inflation outlook, according to the BSP.
“Possible downside risks to inflation include the implementation of the rice tariffication law, which is expected to improve domestic rice supply and stabilize prices, and lower global crude oil prices,” it said.
Signed in February, the rice tariffication law lifts import limits on rice, which according to the Bangko Sentral, was expected to reduce inflation by 0.6 percentage points this year.
Meanwhile, the central bank said the latest futures prices indicated that global crude oil prices could remain subdued in 2019 and 2020.
“On the other hand, the key upside risks to inflation are seen to emanate from adverse weather conditions, such as El Niño; volatile global oil prices and [the] foreign exchange market; possible policy rate cut by the BSP; higher domestic demand due to the upcoming midterm elections and school enrollment; and higher electricity rates,” it added.
According to the report, a prolonged El Niño presents upside price pressures on food prices.
“The start of a weak El Niño condition could lead to droughts in the first half of 2019,” the BSP said.
Citing the latest assessment of the Philippine Atmospheric, Geophysical and Astronomical Services Administration, the central bank warned that a slightly warmer average temperature and significant reduction in rainfall could result in moderate to severe drought over the forecast horizon.
“This could result in higher prices of key food items broadly similar to previous El Niño episodes,” the Bangko Sentral said.
On the other hand, it added that, despite averaging lower in first quarter, Dubai crude oil prices had been steadily rising since January due to tighter supply.
Estimated futures prices of Dubai crude as of end-March, six of which are based on the movements of Brent crude oil, showed a higher path for 2019–2022, compared to the previous quarter’s estimates.
Meanwhile, the peso averaged P52.37:$1 in the first quarter, appreciating by 1.71 percent from the previous quarter’s average of P53.26:$1.
Easing inflation prompted the BSP’s policymaking Monetary Board to keep key interest rates unchanged at its March 21 meeting.
With inflation already down to 3.3 percent in March and the economy also expected to slow this year, given El Niño, budget delay and the US-China trade war, some analysts now expect central bank rate cuts to come as early as May.
The Bangko Sentral also said there were potential sources of upside pressures on electricity charges, such as existing petitions for rate increases and petitions for refunds.
It pointed out that based on the probability distribution of forecasts by 21 out of the 26 private economists surveyed, the central bank said there was an 81-percent chance that average inflation would fall within the 2.0-4.0 percent target.
For 2020, economists had a mean inflation forecast of 3.4 percent, also higher than the BSP’s 3-percent estimate.
Source and Original Article from: >>> The Manila Times
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