by: R. Dan J. Roces (Chief Economist)

Overview:

• Our model estimates that January 2019 inflation likely eased further to between 4.5-4.7 percent; we are calling it at 4.6%.
• Bangko Sentral ng Pilipinas’ (BSP) range for the month is between 4.3 to 5.1 percent; December’s print was at 5.1 percent – the lowest since June 2018.
• Monetary Board expected to keep interest rates steady at 4.75 percent.

Key Points:

1. Rice prices continue easing, yet higher fish and vegetable prices were observed likely due to cold weather.
2. International crude oil prices are seeing steady rise; domestic pump prices responded with gradual hikes.
3. Downward adjustments in electricity rates were done, while programmed increases in excise tax on liquor were implemented.
4. Strong peso against the dollar on average.

January Outlook:

We forecast inflation for January to settle at 4.6 percent. Primary drivers were domestic oil price hikes, excise tax adjustments and higher fish and vegetable prices on the back of colder-than-expected weather contributed to upward price pressures.  These on the other hand are offset by lower rice prices, lower electricity, and a stronger peso.

Additionally, we expect the BSP to keep policy rates on hold at its first policy meeting on February 7. As we mentioned in previous reports, the BSP has adopted a “wait-and-see” stance relative to lagged effects of last year’s hikes. We still believe that the central bank may cut policy rates by 25bp as early as Q2 should inflation fall within the government’s target range. Finally, possible slashing of reserve-requirement ratio within Q1 given favorable liquidity conditions.