Inflation rate in April eased to a 16-month low of 3 percent from 3.3 percent in March, prompting economists to believe that the Bangko Sentral ng Pilipinas may consider cutting the benchmark interest rates in its policy meeting Thursday.
The Philippine Statistics Authority said Tuesday the slower inflation rate was due to lower price increases of food and non-alcoholic beverages. The April print was the slowest since it settled at 2.9 percent in December 2017.
This brought the average inflation rate in the first four months to 3.6 percent, within the government’s target range of 2 percent to 4 percent for the year.
“The slowdown was mainly brought about by the slower annual increase in the heavily-weighted food and non-alcoholic beverages index at 3 percent,” the PSA said in a statement.
Bangko Sentral Governor Benjamin Diokno said the April inflation was consistent with the regulator’s expectation that inflation would continue to settle within the target range this year and next.
“However, the continued increase in global crude oil prices and the possibility of a prolonged El Niño episode could be a source of upside price pressures over the near term,” Diokno said in a statement to reporters.
He said the weakening global economic environment could present downside risks to inflation.
“Against these upside and downside risks, the BSP continues to keep a close watch over price developments in the country and shall consider all relevant data at its next policy meeting on May 9, 2019 to ensure that monetary policy stance remains consistent with the BSP’s primary mandate of price stability conducive to a balanced and sustainable growth of the economy,” Diokno said.
British bank Standard Chartered said the combination of falling inflation and slowing growth was likely to lead the BSP to start unwinding part of the 175 basis points of rate hikes in 2018.
“We see a total of 100 bps of rate cuts this year, taking the policy cash rate to 3.75 by yearend,” the bank said.
ING Bank Manila senior economist Nicholas Mapa said, “it would be about time for BSP to ease off the brakes from ‘crisis mode’ and finally nudge on the accelerator to zoom to faster growth.”
Economic Planning Secretary Ernesto Pernia said the latest inflation data showed that the government continued to rein in the overall price increases in the country.
“The recent inflation reading validates our efforts towards stabilizing inflation so that the country’s buoyant economic growth, along with key reforms, remains unimpeded,” Pernia said in a statement.
“The continued low inflation of rice can be attributed to the stable rice supply in the country, with more imported rice expected to arrive in the country as the Rice Liberalization Act takes effect,” Pernia said.
The law, which lifts the quantitative import restriction on rice, is expected to keep rice prices low and more affordable especially for low-income households.
Pernia said the government should remain watchful of upside risks to inflation such as the ongoing El Niño phenomenon, possible increase in utility rates and volatility in international oil prices.
“Given unstable global oil prices, the government should prioritize rolling out the second tranche of its social mitigating measures under the Train [Tax Reform for Acceleration and Inclusion] law, such as the unconditional cash transfer and Pantawid Pasada, especially now that the 2019 national budget has already been signed into law,” he said.
The Monetary Board is scheduled to hold a policy meeting on May 9.