By Lee C. Chipongian

Inflation rate is expected to fall below five percent as early as February this year and should remain within the target range of two-four percent for the rest of 2019, according to a Metrobank research unit.

First Metro Investment Corp. and the University of Asia and the Pacific (FMIC-UA&P) forecasts inflation to hit 5.7 percent in December 2018, 5.3 percent in January and decelerate further to 4.7 percent in February.

In its latest “Market Call” report, it said inflation “is on a clear downtrend and should go below five percent (year-on-year) in the first quarter 2019 and steadily fall for the rest of 2019.” It added that lower food prices and very soft crude oil prices should more than offset the increase in minimum wage and transportation rates.

The declining inflation outlook will further convince the Bangko Sentral ng Pilipinas (BSP) and its Monetary Board to keep key rates unchanged this year after five straight increases which resulted to a cumulative 175 basis points hike, it said.

However, Metrobank analysts said with banks’ liquidity positions tightened by additional capital requirements under Basel 3 principles that the BSP has adopted recently, they expect the BSP to cut reserve requirement ratio (RR) by another two percentage point this year, followed by a policy rate cut by the second half of 2019.

The BSP reduced RR ratio by 200bps this year before the inflation rate started rising and reached a nine-year high of 6.7 percent in September and October. The elevated inflation halted the BSP’s RR adjustments.

According to FMIC-UA&P, “(the) rapidly decelerating inflation, robust job gains and election spending, which should start in November 2018, and OFW peso remittances should provide ammunition for a recovery in consumer spending both in the fourth quarter 2018 and in 2019.”

The BSP earlier said that December inflation will likely settle within a 5.2 percent-six percent range because of the sustained slowdown of inflation in November of six percent.

With easing price pressures, the BSP on its last Monetary Board policy meeting (December 13) decided to leave benchmark overnight rate untouched after five straight rate hikes.

The BSP also reduced its 2019 and 2020 inflation forecasts, as well as its 2018 inflation estimate which is now 5.2 percent from 5.3 percent earlier, during its November 15 Monetary Board policy meeting.

For next year, inflation rate is projected to average 3.18 percent and 3.04 percent for 2020. These numbers are lower than previous forecast of 3.5 percent and 3.3 percent, respectively, for 2019 and 2020.

The central bank expects inflation level to return within the target range or below four percent as early as the first quarter.

As of end-November, inflation average year-to-date is 5.2 percent. The December inflation number will be released this week.