Inflation seen to fall within target in December

MANILA, Philippines — Inflation is expected to finally ease within the central bank’s two to four percent target range this month after staying above the upper end of the range for 20 consecutive months, according to Moody’s Analytics.

The research arm of the Moody’s Group sees December inflation easing to a 22-month low of 3.7 percent – the lowest since three percent in February 2022 – from 4.1 percent in November.

Headline inflation last stayed within the two to four percent target range of the Bangko Sentral ng Pilipinas (BSP) when it averaged four percent in March 2022.

BSP Governor Eli Remolona Jr. also believes that inflation likely returned to within the two to four percent target range as early as December after easing for two consecutive months to 4.9 percent in October and to 4.1 percent in November from 6.1 percent in September

However, Remolona said the Philippines is not yet out of the woods when it comes to dealing with inflation, signaling a higher-for-longer interest rates.

As inflation and inflation expectations continued to ease, the BSP kept interest rates steady in November and December. The benchmark interest rate currently stands at a 16-year high of 6.50 percent, the highest since the 7.50 percent recorded in May 2007.

The BSP chief pointed out that interest rates could remain higher-for-longer as monetary authorities assess the potential impact of a severe El Niño on food and energy prices.

“When we have to tighten monetary policy to bring inflation down, we try to do it in a way in which we don’t tighten unnecessarily. We don’t want to tighten so that it affects growth,” Remolona said.

The BSP has lowered its risk-adjusted inflation forecasts to six percent from 6.1 percent for 2023 and to 4.2 percent from 4.4 percent for 2024, but retained the 2025 figure at 3.4 percent.

The central bank maintained a hawkish pause in November and December to assess the impact of previous rate adjustments that continue to work their way through the economy.

The BSP chief does not see an immediate pivot to monetary policy easing in the next few months as inflation outlook still leans significantly toward the upside.

He signaled that the benchmark interest rate would remain at a 16-year high “for a while.”

“Yes, I think we’re unlikely to cut rates in the next few months. We’re in a higher for longer; when I say hawkish, that basically means high for a while,” he said.

According to Remolona, rate cuts would only be considered once inflation expectations are in a “comfortable” range.

“I think we’re looking at many, many numbers, right? And if most of the numbers point in the right direction, including expectations, they really settle into this comfortable range of three percent for inflation, then we would consider cutting rates,” Remolona said.