Inflation remains benign in April
MANILA, Philippines (Update 2, 11:28 a.m.) — Consumer price growth in the Philippines continued to soften in April on the back of moderate food inflation, giving monetary authorities more space to ease monetary policy settings and place a greater emphasis on growth.
Inflation in April stood at 3%, lower than 3.3% posted in March and 4.5% recorded a year ago, data released Tuesday by the Philippine Statistics Authority showed.
According to the PSA, the latest reading — which marked the sixth month of decline — was the slowest rate since January 2018.
Year-to-date, inflation averaged 3.6%, well within the Bangko Sentral ng Pilipinas’ 2%-4% annual target.
“The slowdown was mainly brought about by the slower annual increase in the heavily-weighted food and non-alcoholic beverages index at 3.0%,” the PSA said.
The central bank tightened monetary policy by a cumulative 175 basis points to 4.75 percent last year after inflation hit a near-decade high in September and October. Soaring prices have eased since then.
Stubbornly high inflation last year and higher borrowing costs weighed on consumer spending, which has traditionally been the driving force behind growth in the Philippines, and crimped economic expansion to a three-year low of 6.2% in 2018.
BSP Governor Benjamin Diokno — who is widely seen by the market as a pro-growth central bank chief — recently said there is room to loosen monetary policy, but stressed that the timing and magnitude of any actions would be “data dependent.”
Diokno also said possible quarterly cuts in required reserves imposed on banks may happen this year, pointing out that the Philippines’ reserve requirement ratio “is very high.”
Commenting on the official inflation data for April, HSBC Global Research economist Noelan Arbis said the time is ripe for the BSP to begin monetary loosening given “prevailing economic conditions and the lagged impact of monetary policy on the real economy.”
“We expect [gross domestic product] growth to slow to 6.0% in 2019 from 6.2% in the previous year given a prolonged impasse on passing the 2019 fiscal budget, higher bank lending rates, low domestic market liquidity, and tepid remittances growth,” Arbis said.
“These should translate to lower GDP growth for at least the first quarter of the year. Growth may slow further in subsequent quarters if the BSP does not engage in immediate and adequate monetary accommodation,” he added.
But for Nomura economist Euben Paracuelles, the BSP is unlikely to cut policy rate at the Monetary Board’s meeting this week.
“However, we expect the policy statement to be decidedly dovish, given the increasingly favourable inflation outlook, and we think this could pave the way for a potential policy rate cut at the next monetary board meeting in June, earlier than our baseline of a total 50bp in policy rate cuts this year starting in Q3,” Paracuelles said in a separate commentary.
The government will release the first quarter GDP growth data in the morning of Thursday, May 9. The BSP meeting will be held in the afternoon.
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