MANILA -- Analysts expect a cut in the Bangko Sentral ng Pilipinas’ (BSP) key policy rates next month after inflation returned to its downward trajectory last June.
The Philippine Statistics Authority (PSA) on Friday reported a deceleration in the country's inflation rate last June, at 2.7 percent from the previous month’s 3.2 percent, bringing the six-month average at 3.4 percent. Inflation in the same month last year is higher at 5.2 percent.
Core inflation, which excludes volatile items like food and oil products, also decelerated after it hit 3.3 percent from month-ago’s 3.5 percent, with average now at 3.7 percent.
ANZ Research, in a report, said base effects resulting from the high inflation rate last year also affects the rate of price increases in succeeding months “perhaps falling below the 2.0% mark.”
“We expect the BSP to cut its policy rate by 25 basis points in August, with inflation under control and growth slowing,” it added.
Last May, BSP’s policy-making Monetary Board (MB) slashed by 25 basis points the central bank’s key rates after noting the sustained deceleration of inflation rate, which peaked at 6.7 percent in September and October last year, and firm domestic growth.
The economy posted slower growth, as measured by gross domestic product (GDP), of 5.6 percent in the first quarter of the year from quarter-ago’s 6.3 percent.
Economists attributed this to the delayed approval of this year’s national budget, which prevented the government to implement new infrastructure projects for lack of funding.
The bicameral conference committee approved the proposed budget only last February and President Rodrigo R. Duterte was able to sign it into law only last April.
Relatively, ING Bank Manila Senior economist Nicholas Mapa said inflation “may revert to a downward path” in the coming months.
He said latest indications show that “inflation remains well behaved enough with BSP's 2019 forecast of 2.7 percent inflation now looking more probable.”
He was referring to the government’s two to four percent inflation target until 2021.
He noted that BSP Governor Benjamin Diokno has hinted more rate cuts within the year and pointed out that “the slower inflation print should afford them proper scope to ease monetary policy further.”
“With inflation well-within target, BSP will likely look to tap on the accelerator once more after having slammed hard on the brakes in the previous year. ING is penciling in a policy rate cut by the BSP at its August meeting should inflation continue to show it will remain within target and 2Q growth is projected to be soft,” he added. (PNA)
