‘Volatile inflation to keep rates steady’

MANILA, Philippines — Commodity prices in the country will remain volatile for the first semester, prompting the Bangko Sentral ng Pilipinas (BSP) to keep rates steady and start easing only by June, according to Moody’s Analytics.

In its latest weekly highlights and preview, the research arm of the Moody’s Group said cooling inflation would give the BSP Monetary Board confidence to finally start cutting down on borrowing costs.

However, prices of commodities may remain unpredictable over the next few months.

“Volatile inflation prints in the first half of the year will persuade BSP to stay on hold, leaving us to expect its first rate cut to be in June at the earliest,” Moody’s Analytics said.

“Until then, household budgets will be under pressure,” it said.

Inflation further eased to a 22-month low of 3.9 percent in December, bringing the full-year rate to six percent, still above the two to four percent target band of the BSP.

For January, the BSP is expecting that inflation further cooled for the fourth straight month, between 2.8 percent and 3.6 percent.

The Philippine Statistics Authority will release the latest inflation data today.

Economists and think tanks have warned of a potential increase in inflation due to food supply shocks arising from El Niño and geopolitical risks.

Even BSP Governor Eli Remolona Jr. noted that a rate cut in the first semester is “too soon.”

Nonetheless, Moody’s Analytics is projecting that the economy will fare better this year especially in the second half.

Last year, the economy grew by 5.6 percent, outpacing major Asian economies and market expectations, but expanding below the six percent target of the government.

“As borrowing costs ease, private consumption and investment should benefit,” Moody’s Analytics said.

“An improving external climate will bolster trade and an expected upturn in semiconductors and electronics will brighten prospects in the second half,” it added.

In 2023, growth was lifted by households and private investment. However, state spending declined while exports tumbled and industry slowed.