December inflation likely below BSP forecast, new rate cut also possible: economist


Posted at Jan 04 2021 03:32 PM

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MANILA - Inflation in December will likely settle below the central bank's target as the country continues to deal with overall weak demand, an economist said Monday.

The Bangko Sentral ng Pilipinas is also likely to make another interest rate cut if the economy again contracts in the fourth quarter, according to Vic Abola, an economist at the University of Asia and the Pacific. 

Abola said inflation will likely hit 2.5 percent in December, which is lower than the 2.9 to 3.7 percent forecast by the Bangko Sentral ng Pilipinas (BSP).

"You see other [prices of] items are going down. In malls, they do sales, and this is to get cash and move their goods... Due to the weak demand, I don't see an overall pressure upwards. That will come much later when the economy comes back into high gear," Abola told ANC's Market Edge on Monday.

Abola said demand will still be weak, which will cause inflation to settle at 2.6 percent this year and 2.7 percent in 2022.

He added that the BSP may be forced to cut its policy rate again by 25 basis points from the already historic low of 2 percent if the economy remained "deeply negative" in the last quarter of 2020.

"Let's face it, our central bankers are on the hawkish side. They like to err on that side," Abola said. 

The economy shrank 11.5 percent in the third quarter last year, marking the first time in 35 years that GDP contracted for three straight quarters. GDP shrank 16.9 percent in the second quarter and 0.7 percent in first quarter.

He noted that the country "needs to work out" how people will get back to work, and mobilize by solving the current problems in public transportation.

During lockdowns, public utility vehicles such as jeepneys were prohibited from operating to avoid spreading the novel coronavirus. This left thousands of drivers with no source of income.

"We have to be realistic. Looking on the ground, things are not moving," Abola said.

Official inflation figures for December and full-year 2020 will be out on Jan. 5.

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