MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is further revising downward its inflation forecast to below six percent this year after it cooled to a six-month low of 7.6 percent in March.
BSP Governor Felipe Medalla said during the Philippine Economic Briefing in Washington that headline inflation has started to ease as a result of the central bank’s tightening cycle to tame inflation and stabilize the peso.
Headline inflation averaged 8.3 percent in the first quarter, still way above the BSP target of two to four percent, while core inflation averaged 7.7 percent after accelerating further to eight percent in March from 7.8 percent in February.
The BSP chief said the central bank’s Monetary Board would revise its forecasts for this year and 2024 during its next rate-setting meeting scheduled on May 18.
“By the way, revising these with the newer numbers, inflation will probably be below six percent in the revised numbers. But as you can see, for 2024, we are confident that we are going to be very close to the mid-point of our target. But a lot of things can happen,” Medalla said.
Based on its assessment last March 23, the BSP slashed its inflation forecasts to six percent from 6.1 percent for this year, and to 2.9 percent from 3.1 percent for 2024.
According to the BSP official, headline inflation is likely to ease back to within the central bank’s two to four percent target range by November or December this year.
“For the year, of course, it’s impossible to hit four percent. We will need negative inflation for the remaining part of the year to hit four percent,” he said.
To fight inflation and stabilize the peso, the BSP has raised key policy rates by 425 basis points since May last year, making it the most aggressive central bank in the region.
This brought the overnight reverse repurchase rate to a 16-year high of 6.25 percent from an all-time low of two percent.
Late last year, the BSP matched the aggressive rate hikes delivered by the US Federal Reserve to maintain a healthy interest rate differential and stabilize the peso that slumped to an all-time low of 59 to $1 last October.
Medalla reiterated that the BSP would likely step on the brakes of its tightening cycle as early as next month if the downtrend in inflation continues in the coming months.
“Now we’re probably near the end. We’re probably pausing in the next meeting because inflation prints are very good. If April turns out to be another very low inflation month, so that’s three good points in a row, and we are in a position to pause,” the BSP chief said.
Nalin Chutchotitham, economist for the Philippines at Citi, said the Monetary Board could still deliver another smaller 25-basis-point hike next month, as core inflation remained elevated due to persistent demand-pull pressures, particularly in the services sector.
“This would bring the benchmark interest rate to 6.50 percent, the highest since the 7.50 percent recorded in May 2007. The BSP is likely close to the end of its hiking cycle. We continue to expect one more 25-bp rate hike in May to 6.50 percent, to ensure that inflation expectations would be well-anchored,” Chutchotitham said.