Rate cut more likely as inflation drops
LOWER-THAN-EXPECTED June inflation has raised the likelihood of the Bangko Sentral ng Pilipinas (BSP) cutting key interest rates next month, analysts said.
Consumer price growth slowed to 3.7 percent in June, easing from May's 3.9 percent and below the 3.9 percent median in a Manila Times poll of economists. It ended a four-month rise and bucked earlier expectations of a second-quarter breach of the central bank's 2.0- to 4.0-percent target.
«Today's (Friday's) inflation decline, and the anticipated declines in the months ahead, will make it easier for the BSP doves, including Governor Eli Remolona, to argue for rate cuts,» ING Bank in Manila said.
It added that the latest inflation data could help the peso rebound and will be a «key factor to watch when gauging whether or not BSP has the ability to ease rates ahead of the Fed without this spurring unwanted PHP (Philippine peso) depreciation.»
«This will certainly be easier to achieve if it comes against a backdrop of solid growth yet moderating inflation,» it said.
A further drop in inflation — data for July is due on August 6 — and favorable second quarter growth results — set for release on August 8 — could all but guarantee a rate cut during the Monetary Board's August 15 policy meeting.
Bank of the Philippine Islands senior economist Emilio Neri said a rate cut was «practically baked in as inflation will likely drop to 3.0 percent or lower by September.»
Advertisement«FX (foreign exchange) pass through is unlikely to be a major concern for the monetary authorities for at least six months,» he added.
Pantheon Macroeconomics economist Miguel Chanco said he was keeping a full-year inflation forecast of 3.3 percent and that price growth would be at a «fairly moderate pace that we believe will persist in 2025, giving the BSP enough room to normalize policy gradually.»
«Headline inflation now looks secure within the Bank's 2-to-4 percent target range for the foreseeable future, barring an unexpected supply shock,» he added.
«We continue to believe that the board will start to cut rates next month, reducing it by a total of 75 bps before the end of the year.»
AdvertisementBSP Governor Eli Remolona Jr. last month
