BANGKO Sentral ng Pilipinas is likely to keep rates steady beyond 2017 after consumer prices further eased in June to 2.8 percent from 3.1 percent a month ago, Deutsche Bank said in a research note released Friday.
“Following price developments over the past three months and the BSP’s remarks during meetings in June, we now expect the BSP keeping rates steady for the next nine months,” the bank said.
Consumer price pressures again eased in June as both headline and core inflation moderated by 30 basis points from the previous month to record 2.8 percent and 2.6 percent, respectively.
June inflation was pulled down by slower increases in food and most non-food prices. Prices of food and non- alcoholic beverages rose 3.5 percent year-on-year in the month as against the 3.7 percent increase in May and 4.2 percent in April.
Meanwhile, the downward adjustment in electricity rates as well as the drop in crude oil prices in the month caused non-food inflation, such as of utilities and transport, to ease.
Deutsche said price surveys were not conducted in the province of Lanao del Sur in June amid the armed conflict in the capital city of Marawi, thus, the province’s exclusion in the CPI data might have also contributed to last month’s lower inflation reading.
“With June inflation coming in 30bps below our expectation, we are revising our 2017 inflation forecast 10bps lower to 3.1 percent, now in line with the BSP’s. We see inflation inching higher from here, to peak at 3.1 percent, as against our earlier view of 3.3-3.4 percent, within August to October,” it said.
“Given these developments, we no longer see the BSP raising rates for the rest of 2017,” it said.
Deutsche said it was not revising its rates outlook despite the expected passage into law of the government’s comprehensive tax reform program.
“The BSP strongly believes that the excise tax adjustments in fuel and sugar-sweetened beverages, set to be initiated in January 2018, would have only a temporary impact on inflation. The BSP is thus unlikely to carry out pre-emptive rate hikes to guard against an impending spike in inflation,” it said.
It added with the initial spike in inflation largely cost-push driven, “we believe the BSP will wait for a couple of months to monitor second-round effects.”
