Sharp dip in oil prices frees Philippines from inflation woes
In fact, for the rest of the year, inflation is unlikely to breach the 4% mark, said DBS.
Sharply lower oil prices over the past month should ensure that headline inflation stays at 2.9% YoY in June. Inflation is not going to be a problem this year and based on its current trajectory, full-year inflation will only average at the lower end of the central bank’s (BSP) 3-5% target (DBSf: 3.5%).
Thus far, the country has been enjoying a sweet spot of strong growth (6.4% YoY in 1Q) and low inflation. We think that the overnight borrowing rate (OBR) can be kept on hold for the rest of this year to bolster the domestic economy. Notably, real rates are still positive, indicating that BSP has some wriggle room to maneuver in the event of a sharp slowdown in external demand. Moreover, the country’s external account has been holding up well and there are no immediate constrains from portfolio flows.