MANILA – The Bangko Sentral ng Pilipinas (BSP) is not expected to announce another round of rate easing in the near term despite the sustained deceleration of the domestic inflation rate.
The Philippine Statistics Authority (PSA) on Tuesday reported the five-month low inflation rate of 2.2 percent last April, slower than month-ago’s 2.5 percent, bringing the year-to-date average to 2.6 percent.
BSP forecasts the rate of price increases to average at 2 percent this year and 2.5 percent next year, at the lower half of the government’s 2 to 4-percent target until 2022.
In a report, ING Bank senior economist Nicholas Mapa said last April’s inflation rate is “slightly faster” than market expectation of a 2.1 percent rate.
He, however, said that while inflation decelerated anew, “we do not expect the central bank to resort to additional aggressive policy rate cuts in the near term.”
Since the start of 2020, BSP’s policy-making Monetary Board (MB) has reduced the central bank’s key policy rates by a total of 125 basis points.
Mapa said BSP Governor Benjamin Diokno “did hint at pausing momentarily to gauge the impact of previous rate cuts before acting further.”
“We expect only a 25 bps policy cut if ever BSP opts to ease further as the policy rate edges closer to BSP’s own inflation forecast of 2.2 percent for the year,” he said.
Diokno further said although price pressures are on the downtrend, it is expected to increase in the second half of the year “as supply-side pressures outweigh the demand side pull.’
“Accelerating inflation in 3Q (third quarter), the period of least favorable base effect in 2020, is another reason for BSP to manage further policy rate cuts and reduction to reserves and we expect only marginal easing from here with fiscal stimulus kicking in to support the economy,” he added.
ANZ Research forecasts inflation to average at 1.9 percent this year, below the BSP’s projection.
“Inflation dynamics remain supportive of the current monetary policy stance; and after the release of the CPI (consumer price index) data, the BSP Governor emphasized that the door for further easing through a variety of measures remains open,” it said.
ANZ Research discounts any upside inflationary pressure in the coming months despite the uptick of the heavily-weighted food and non-alcoholic beverage index last April, which posted a rate of 3.4 percent.
It said rice prices posted its “first sequential increase” in 17 months last April, and corn registered an uptick in the last eight months “reflecting some degree of hoarding and disruptions in supply chains.”
“We expect these disturbances to subside in the coming months,” it added.
ANZ Research said that because inflationary pressures are not expected from food prices in the near term, this provides “substantial flexibility on monetary policy.” (PNA)
