WITH stable inflation and strong peso, Fitch Solutions is expecting lower average consumer prices this year, revising its outlook for the Philippines.
In a commentary on Monday, the London-based think tank said that headline inflation is seen averaging at 2.5 percent this year, lower than the previous forecast of 2.7 percent.
For 2021, it is maintaining its 3-percent inflation forecast.
“The downside surprise to headline inflation in August and continued strength of the peso has led us to lower our outlook for inflation in 2020,” the Fitch unit said.
The Philippine Statistics Authority (PSA) recently reported that inflation decelerated to 2.4 percent in August from 2.7 percent a month earlier, bringing the year-to-date figure to 2.5 percent.
The drop in inflation was attributed to lower prices of food and non-alcoholic beverages.
Meanwhile, the peso—which has been trading above P48 level recently—is being recognized as the strongest currency in the region now.
Like the think tank, the Bangko Sentral ng Pilipinas (BSP) earlier revised downwards its inflation outlook for the country. The Central Bank now sees inflation settling at 2.3 percent this year from 2.6 percent. Next year, inflation is expected to average at 2.8 percent from the previous forecast of 3 percent.
Amid a lower inflation forecast, the Fitch unit noted that the Manufacturing Purchasing Managers’ Index recently rising to 50.1 in September is a sign that domestic activity is on its path to recovery.
Google mobility data, however, shows that retail and recreation; and grocery and pharmacy activities are still below regular levels.
“As such, we believe demand-side inflationary pressures will remain subdued such that inflation averages lower,” it explained.
Key policy rate
FITCH Solutions said that the recent decision of the BSP to maintain its key policy rate was parallel with its forecast.
The think tank expects the 2.25-percent interest rate to be kept until late next year.
“As such, the BSP has noted ‘ample liquidity’ and we believe as domestic activity picks up, demand for credit will rebound, proving the financial conditions sufficient,” the Fitch unit said.
The liquidity measures by the BSP are seen to have released P1.5 trillion into the financial system.
Apart from its policy rate trimming, the Central Bank also reduced reserve requirements for commercial banks and small banks; and entered into a P300-billion government bond purchasing agreement.