DBS upgrades forecast for the Philippines

SINGAPORE-based DBS Ltd. again upgraded its 2012 gross domestic product (GDP) forecast for the Philippines, but lowered the outlook for next year’s economic expansion.

In its daily research note called Daily Breakfast on Monday, DBS said it now expects the Philippine economy to grow by 5.6% this year from a previous outlook of 5.3% “on account of strong H1 (first half) numbers.” The country saw its GDP accelerate to an annual 6.1% in the six months to June from 4.2% in the same period last year.

DBS’s revision of its outlook for the full-year GDP of the Philippines is already the second time for the year.

Last June, it hiked its 2012 GDP forecast for the Philippines to 5.3% from an original 4.2% it announced in January, citing the strong 6.4% economic expansion in the first three months of the year.

However,DBS downgraded its outlook for the Philippine economy next year to 5% growth, from an original forecast of 5.2% citing a “weaker global environment.” “Going forward, the country is well-positioned to handle a slowdown in the global economy, with ample room for further monetary and fiscal stimulus if needed,” DBS said.

POLICY RATES STEADY
But the bank said that monetary authorities are expected to keep policy rates steady when it reconvenes on Thursday to assess current settings.

“After the bump in inflation to 3.8% YoY (year on year) in August, a rate cut does not appear likely as BSP (Bangko Sentral ng Pilipinas) may want to anchor inflation expectations first,” DBS said.

However, the bank did pencil in a possible 25-basis-point reduction in policy rates after the September rate-setting meeting.

“In any case, export deterioration is likely to prompt more action by the end of this year and we expect the overnight policy rate to end the year at 3.5%, down from 3.75% currently,” DBS said.

Overnight borrowing and lending rates currently stand at 3.75% and 5.75%, respectively, after the policy-making Monetary Board implemented its third rate cut for the year on July 26.

After the September monetary policy meeting, the Monetary Board will revisit settings next on Oct. 25 and Dec. 13.

Central Bank Governor Amando M. Tetangco last week said key considerations for this week’s policy meeting will be inflation outlook, domestic growth, monetary policy stance of advanced economies and global economic outlook.

BSP Deputy Governor Diwa C. Guinigundo over the weekend said inflation forecasts for this year and the next may be raised after an uptick in the rise in consumer prices in August.

Revisions may be announced after the monetary policy meeting.

Inflation accelerated to a seven-month high of 3.8% in August from 3.2% in July and 2.8% in June.

The central bank has forecast inflation to average 3.1% this year and 3.2% in the next, both at the low-end of the 3-5% target ranges for both years.

DBS, for its part, has already raised its 2012 inflation outlook to 3.3% from a previous forecast of 3.1%.

For next year, the bank has also set it expectations for inflation higher at 3.9% from a previous projection of 3.7%. –KATHLEEN A. MARTIN, Reporter, Businessworld