Why Philippines is still basking in a sweet spot of growth

3% inflation forecast has been penciled in.

According to DBS, headline inflation is projected to reach 3.0% YoY in April and a mild up drift is expected for the rest of the year.

Here's more:

The economy is currently enjoying a sweet spot of strong growth and low inflation. Stable food & energy prices and the strength of the peso have been key factors behind the benign inflation numbers.

Notably, a breakdown of CPI indicates that the increase in sin taxes early this year wasthe biggestfactor why consumer prices are going up in level terms. With inflation staying benign,the central bank (BSP) hastaken active stepstowards deterring excessive speculative inflowsthat have pushed up the peso.

While the reverse repurchase rate has been left untouched at 3.50% thus far this year, the special deposit account(SDA)rate has been slashed by a cumulative 150bpsto 2.00%.

Prior to the last few months, there was no spread between the SDA rate and the reverse repurchase rate. The low SDA rate will likely encourage banks to adjusttheir balance sheet and acceleration in loan growth (raising price pressures) would take place in the coming quarters. Coupled with significant asset price appreciation,room to further lower rates is limited.

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