UnionBank eyes Feb. inflation at 2.8%

Economists of Union Bank of the Philippines (UnionBank) are considering the slowdown of February inflation rate to 2.8 percent due to lower food pressures and the impact of the coronavirus disease (Covid 19) on people's spending.

This forecast is lower than the 2.9 percent inflation rate last January, which, in turn, is an uptick from the previous month's 2.5 percent.

In a report, the bank's Economic Research Unit (ERU) said risk for food inflation is now lesser after the government lowered Taal Volcano's Alert Level from 4 to 3 last January 26.

In terms of oil prices, the report cited the agreement by OPEC+, a group of 24 oil producing countries led by Saudi Arabia and Russia, to cut production as well as the lower demand by China due to the impact of Covid 19. These are seen as downside risks to domestic inflation rate.

The report noted that people have decided not to go out much after the World Health Organization (WHO) declared the outbreak a global health emergency.

As a result, general consumption of goods and services tend to be lower and slow, which will have a direct impact on firms that produce these goods and services, it said.

The report also forecast full year inflation to average at 3.1 percent, at the upper half of the government's 2 4 percent target band.

It also said that with growth seen to be dampened by the impact of the virus and inflation remaining low the Bangko Sentral ng Pilipinas' (BSP) policy making Monetary Board (MB) may cut key policy rates anew during its second rate setting meet for the year on March 19 after the 25 basis points reduction last February 6.

Further rate cuts may be a stronger but not necessary an optimum economic policy tool over other fiscal policy instruments, like the ones employed by the Bank of Korea recently using loan support for hardest hit industries or firms, but there must be a recognition of the need to coordinate monetary and fiscal policies to help address the negative impact of the Covid 19 epidemic that is even threating to be a full blown pandemic, it added.


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