MANILA, Philippines — Inflation has plateaued in the second quarter, giving the Bangko Sentral ng Pilipinas (BSP) more room to keep its accommodative stance to help the economy fully recover from the pandemic-induced recession, Standard Chartered Bank said.
Chidu Narayanan, economist for Asia at Standard Chartered, said inflation may ease in the second half after steadying at 4.5 percent in March, April and May.
“Inflation has plateaued in the second quarter, after spiking sharply in the first quarter, as the imposition of nationwide lockdowns impacted activity, hurting demand. We expect inflation to ease in the second half as the low base from 2020 fades. This should provide BSP with space to maintain easy monetary policy, at least through the rest of 2021,” Narayanan said.
Inflation averaged 4.4 percent from January to May, exceeding the BSP’s two to four percent target, on rising oil prices as well as higher food prices particularly meat due to supply shocks brought about by weather-related disturbances and African swine fever (ASF) outbreak.
As monetary authorities expect inflation to return within the target toward the end of this year until next year, the BSP has kept interest rates at record lows to boost the economy that stalled last year due to containment measures aimed at slowing the spread of COVID-19.
“We expect BSP to keep rates on hold through 2021 and 2022, on a moderation in inflation combined with still-soft growth and subdued sentiment,” Narayanan said.
Despite the P2.2 trillion injected into the financial system by the BSP through various COVID-19 response measures, bank lending contracted by five percent in April from 4.5 percent in March as the industry remained risk averse and due to tepid demand from borrowers.
Credit growth has declined to multi-decade lows on lukewarm private sector activity, we expect it to remain muted this year on subdued sentiment,” Narayanan said.