THE easing of inflation rate will augur well for the economy next year, economists from First Metro Investment Corp. and University of Asia & the Pacific said in a joint report Friday.
The economists’ Market Call report for the month of December said the downtrend in inflation which is expected to decelerate further to below 4 percent by the second half of 2019 was likely to boost consumer demand.
“Along with robust spending on infrastructure and capital outlays, election-related spending and job generation, we think that PH economic growth is poised for a faster expansion in 2019,” they said.
After peaking to 6.7 percent in October, inflation fell to 6 percent in November, supported by a combination of policy rate increases, easing of supply-side constraints on rice availability and some moderation in commodity prices.
The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, on Dec. 13, decided to keep the policy interest rates steady at 4.75 percent after five successive hikes since May, taking into account the decelerating path of inflation.
The interest rates on the overnight lending as well as deposit facilities were likewise held steady.
The board noted that the latest inflation forecasts showed a lower path over the policy horizon, with inflation settling within the target band of 2 percent to 4 percent for 2019 to 2020.
The economy grew 6.1 percent in the third quarter, slower than 7.2 percent a year ago and 6.2 percent a quarter ago which was partly blamed to higher inflation that caused the slowdown in household spending.
Earlier, global debt watcher Fitch Ratings affirmed the investment grade or “BBB” rating of the Philippines with a stable outlook, citing the country’s favorable growth prospects supported by strong domestic demand and increasing infrastructure investment.
Fitch said in a statement the economy was likely to grow around 6.6 percent in the next two years.
Fitch also cited the lower government debt, and a net external creditor position against lower per capita income levels, a weaker business environment and lower standards of governance compared with its rating category peers.
“Inflation pressures now appear to be easing, partly due to recent monetary policy tightening and easing of some supply-side pressures. We forecast GDP growth to remain strong in 2019 and 2020 at around 6.6 percent, supported by robust private consumption and public investment,” it said.
But it said GDP growth could come under downward pressure, similar to other countries in the region, from the slowdown in China and escalating trade tensions with the US, and from rising domestic and global interest rates.
Fitch expects the full-year inflation to average 5.2 percent in 2018 and decline to within the central bank’s target range of 2 percent to 4 percent in 2019 and 2020 as the cumulative rate increases of 175 bp during 2018 take effect and as the impact of excise tax hikes in 2018 dissipates.