High food prices 'could put a lid' on BSP's rate cut plan

MONETARY authorities could shelve a plan to cut key interest rates next month given the likely impact of a recent typhoon and still-high rice prices, ING Manila Bank said.

«So far, the cut in rice tariffs in early July seems to have had no discernible impact on Philippine retail rice prices, and the recent typhoons may push other seasonal food prices higher in the meantime, so we may need to wait to see the impact of lower tariffs on food prices and inflation more generally,» ING Manila said in a commentary.

«We think that probably puts a lid on Bangko Sentral ng Pilipinas' (BSP) ambitions to front-run the Federal Reserve with rate cuts as soon as this month,» it added.

The Department of Agriculture has reported that agricultural losses due to the combined effects of Typhoon «Carina» and the southwest monsoon have exceeded P1.17 billion.

The calamity had affected 40,904 farmers and fisherfolk across several regions, while the typhoon-enhanced southwest monsoon resulted in loss of around 18,086 metric tons (MT) of crops from 42,708 hectares of agricultural land.

Rice losses were estimated at 10,272 MT valued at P660.6 million.

BSP Governor Eli Remolona Jr., however, has said that the calamity will not affect July inflation number as «usually the effects come with a lag, so it may not even affect August in terms of the aggregate CPI (consumer price index) basket.»

The central bank's policymaking Monetary Board remains on track to start cutting rates next month as inflation is expected to have peaked in July, he said on Tuesday. Remolona also reiterated that a 25-basis-point cut was possible, to be followed by another later this year.

ING Manila Bank said that while conditions were becoming more favorable, the «BSP could well still see a window for easing in the fourth quarter of 2024.»

The BSP's benchmark rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of increases beginning in May 2022 when inflation started surging in the wake of Russia's invasion of Ukraine.