BSP expects inflation to ease at 2.2% to 3%

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects inflation to ease at a range of 2.2 to three percent in June from 3.2 percent in May due to lower rice and oil prices, cheaper electricity rates, and a stronger peso.

The central bank’s Department of Economic Research (DER) attributed the slowdown to lower rice and domestic oil prices along with the downward adjustment in electricity rates and recent peso appreciation.

The BSP believes the slight uptick in inflation to 3.2 percent in May from three percent in April was temporary.

Inflation averaged 3.6 percent in the first five months of the year, within the BSP’s two to four percent target.

“Going forward, the BSP will remain watchful of the evolving inflation environment to ensure that the monetary policy stance remains consistent with the BSP’s price stability mandate,” the central bank said.

The BSP decided to hit the pause button by keeping interest rates unchanged last June 20 to observe and assess the impact of prior monetary adjustments.

The central bank slashed interest rates by 25 basis points last May 9 due to easing inflation as well as slower-than-expected gross domestic product (GDP) growth of a four-year low of 5.6 percent in the first quarter from 6.3 percent in the fourth quarter due to the budget impasse.

It also resumed the reduction of the level of deposits banks are required to keep with the BSP.

For small banks, the RRR was reduced by 100 basis points last May 31.

Last June 20, the BSP lowered its inflation forecast to 2.7 percent and to three 2019 percent for next year due to lower global oil prices and the continued strengthening of the peso against the US dollar.

Robert Dan Roces, chief economist at Security Bank Corp., said inflation may ease at 2.9 percent in June after a slight uptick to 3.2 percent in May.

“In the heavily-weighted food and non-alcoholic beverages index, we see that although rice prices have consistently been going down for the last two months, fish and beef prices still register higher markups,” Roces said.