'Uptick in inflation won’t prevent further monetary policy easing'
MANILA, Philippines — The faster-than-expected consumer price growth recorded last month would unlikely discourage the Bangko Sentral ng Pilipinas from easing monetary policy, London-based Capital Economics said, adding that two more rate cuts are expected this year.
Inflation quickened to 3.2% in May, bucking a six-month downtrend mainly due to an uptick in food prices. Year-to-date, inflation averaged 3.6%, still within the BSP’s 2%-4% annual target.
In a commentary sent to reporters Wednesday, Alex Holmes, Asia economist at Capital Economics, said the faster inflation last month “mainly reflected temporary factors and is unlikely to preclude further rate cuts from the central bank.”
A benign inflation should also give the BSP more space to further cut the amount of cash that banks must hold as reserves, Holmes said.
“Following the release, BSP Governor Diokno gave about as clear a signal of future policy as he could give, saying that ‘rate cuts are inevitable’ and that the uptick in inflation ‘does not constitute a trend,’” Holmes said.
“We continue to expect the Bank to cut rates by another 25bps at its next meeting on 20th June. And given that inflation is set to fall back, an additional cut is likely in the second half of this year,” he added.
“We are forecasting another round of cuts before the year is through, taking the [reserve requirement ratio] to 14%,” he continued.
In a bid to power growth amid cooling inflation and tight liquidity conditions, the BSP in May cut its benchmark rate by 25 basis points to 4.5% from a decade-high of 4.75%, and announced a three-step RRR reduction to 16% from 18%.
Diokno — who is widely seen by the market as a dovish BSP governor — reportedly said that the May reading should be taken with a grain of salt.
“One should not read too much on the uptick. One data point does not constitute a trend. That’s elementary,” the BSP chief said.
Meanwhile, BSP Deputy Governor Diwa Guinigundo said: “The only risk is when the uptick gets prolonged and starts generating second-round effects and higher inflationary expectations especially in the face of the heavy catch up on public spending on infrastructure in the second half.” — Ian Nicolas Cigaral
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