The decelerating inflation will likely compel the Bangko Sentral ng Pilipinas to keep the policy interest rates unchanged in its meeting this week, Moody’s Analytics said Monday.
Moody’s Analytics which operates independently of Moody’s Investors Service said the central banks in the Philippines and Indonesia were expected to keep interest rates on hold due to lower inflation in the past months.
“Central banks in Indonesia and the Philippines will keep their respective policy rates on hold in June. Lower food and fuel prices have cooled headline inflation in those economies, giving the central banks space to hold monetary policy settings steady,” it said.
The report particularly mentioned the cooling down of inflation in the Philippines which, after peaking at 8.7 percent in January 2023, eased to 8.6 percent in February, 7.6 percent in March, 6.6 percent in April and 6.1 percent in May.
“Inflation began cooling more recently in the Philippines. After peaking at 8.7 percent year-on-year in January, inflation there eased to 6.1 percent in May,” Moody’s Analytics said.
The interagency Development Budget Coordinating Committee earlier revised the average inflation rate assumption for 2023 to 5 to 6 percent from a previous estimate of 5 to 7 percent partly due to the consistent slowdown in consumer prices over the past four months.
Inflation is seen returning to the target range of 2 percent to 4 percent by 2024 until 2028 as the Marcos administration, through the Interagency Committee on Inflation and Market Outlook, provides proactive measures to address the main drivers of inflation.
Hongkong and Shanghai Banking Corp. said in a previous report the Bangko Sentral ng Pilipinas might not be inclined to tweak its policy stance this week on continued robust economy coupled with the slowdown in inflation rate.
The economy grew by 6.4 percent in the first quarter, following a 46-year high of 7.6 percent last year driven mainly by robust domestic demand amid the continued return to greater normalcy.
“With economic conditions relatively calm over in the archipelago, we think the BSP remains sanguine and unperturbed; we therefore expect it to hold its policy rate at 6.25 percent,” HSBC said.
HSBC said the BSP might resume its tightening cycle if pressures on the peso stoked concerns over inflation, or if core inflation became stickier than expected.
Core inflation―or the change in prices of goods and services except for those from the food and energy sectors―continued to decelerate on a sequential basis.
HSBC said adding confidence to the central bank’s decision was the well-timed cut to the reserve requirement ratio by June 30. The RRR cut will coincide with the expiry of the pandemic-era relief measure on reserves, making the RRR cut liquidity-neutral to a certain extent.