BSP seen cutting rates this week

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is expected to slash policy rates in its meeting on June 20 despite an uptick in inflation in May,  London-based Capital Economics said over the weekend.

Headline inflation rose at a faster pace of 3.2 percent in May from three percent in April, bringing the year-to-date average to 3.6 percent.

This, however, still sits well within the government’s full year inflation target of two to four percent.

The uptrend was primarily brought about by faster growth in the heavily weighted food and non-alcoholic index as well as in the index of housing, water, electricity, gas and other fuels.

“We think that the central bank in the Philippines (BSP) will cut interest rates for a second consecutive meeting on Thursday, despite a recent uptick in inflation in May. The consensus is currently split between a cut and no cut,” Capital Economics said.

In May, inflationary pressures appeared to be more pronounced in the National Capital Region but more subdued in areas outside.

The National Economic and Development Authority (NEDA) attributed the faster growth in food prices to the prevailing El Niño that brought damage to the agriculture sector.

The macroeconomy research firm said the uptick in May was caused mostly by temporary factors which pushed meat and vegetable prices up.

“The upshot is that May’s inflation data are unlikely to deter the central bank. Indeed, the governor of the BSP recently said that further cuts are “inevitable,” said Capital Economics.

Other than a cut this week, Capital Economics also expects another cut in the third quarter before the BSP pauses its easing cycle.