THE further deceleration of inflation could steer the Bangko Sentral ng Pilipinas’s (BSP) near-term policy bias toward easing, economists said on Tuesday, after the Philippine Statistics Authority (PSA) announced the April price growth numbers.
Following the PSA’s announcement that inflation in April settled at 3 percent, BSP Governor Benjamin E. Diokno said the rate was consistent with the Central Bank’s expectations that it will fall within the target range of 2 percent to 4 percent for 2019 and 2020.
As such, Diokno said the latest inflation number will be weighed against the upside and downside risks at its next monetary-policy meeting to “ensure that the monetary-policy stance remains consistent with the BSP’s primary mandate of price stability conducive to a balanced and sustainable growth of the economy.”
Among the upside risks Diokno mentioned are the continued increase in global crude oil prices and the possibility of a prolonged El Niño episode. The weakening global economic environment could also present downside risks to inflation, according to the BSP governor.
The latest inflation data, according to JP Morgan Research Economist Nur Raisah Rasid, will likely prompt a rate cut from the BSP “sooner than later.”
“Morgan had penciled in a cut on account of slower growth and a lower inflation trajectory this year. While our baseline call remains for a cut in the third quarter, this week’s monetary-policy decision has become a close call and will likely hinge on the Central Bank’s interpretation of risks around the growth outlook amid rising external uncertainties,” Rasid said.
Similar views were echoed by local economists during the day.
In a separate research note, Security Bank chief economist Robert Dan Roces said the BSP could resort to easing, albeit in a different form.
“Monetary policy works with long and variable lags, and the ‘data-dependent’ BSP is surely scrutinizing the current impact of its monetary policy responses from late last year; domestic economic conditions have surely improved and thus gives the BSP room for easing,” Roces said.
“However, liquidity is slightly tightening, and with tapering inflation and bank lending contracting, reductions in both the RRR [reserve requirement ratio]
and policy rates may occur, but we think the precedence may be RRR first, then interest rates. The BSP might do this slowly, sort of testing the waters first, via RRR cut of 100 basis points,” the economist added.
Given the BSP’s “forward-looking framework,” ING Bank Manila economist Nicholas Mapa said the Monetary Board is unlikely to decide solely on past data.
Mapa said the officials will weigh expectations and inflation forecasts more heavily in their decision on Thursday (May 9).
“With the inflation objective in hand and growth seeming to take a hit in the first half, it would be about time for the BSP to ease off the brakes from ‘crisis mode’ and finally nudge on the accelerator to zoom to faster growth,” Mapa said.
In their last monetary-policy meeting in March, the Monetary Board decided to keep the interest rate on the BSP’s overnight reverse repurchase (RRP) facility at 4.75 percent, with interest rates on the overnight lending and deposit facilities also kept steady.
Image credits: Nonie Reyes