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Japanese investment bank Nomura expects Philippine inflation to stay above five percent (5%) over the next three months after quickening to its highest level in more than three years to 4.9% in April 2022.
Analysis and Recommendation
Nomura forecasts PHL inflation to surge over 5% for the next 3 months, before slowing down momentarily and then picking up once more for the remainder of the year. Their overall 2022 forecast of 4.6% aligns with the consensus outlook from economists that inflation will indeed overshoot the BSP’s target of 2 to 4%, and this further reinforces the market’s expectations of a potential 75 bps (0.75%) rate hike.
As for the timing, however, of the rate hike, the chances of this taking place earlier than June are low given that clear evidence of second round effects is yet to be seen.
Nevertheless, given the rising interest rate environment both in the PH and in the US, wherein 10Y Treasury Yields continue to hover near the 3% mark, we expect continued downside risk to Philippine equity valuations.
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