THE Bangko Sentral ng Pilipinas (BSP) may start toning down its hawkish monetary policy stance next week when the Monetary Board is expected to maintain key policy rates.
This is according to an economic brief released by the research division of the Australia and New Zealand Banking Group Ltd. (ANZ Research), which expects the BSP to cut interest rates in the fourth quarter this year.
The think tank said the Monetary Board, the highest policymaking body of the BSP, may cut interest rates by 50 basis points. With this, key interest rates may end the year at 6 percent.
“We expect the BSP to tone down its hawkish bias in next week’s monetary policy meeting, while maintaining the policy rate at 6.5 percent,” ANZ Research said.
The think tank said the 2.8 percent inflation rate in January is below market expectations and already at the low-end of the BSP’s inflation target (See: https://businessmirror.com.ph/2024/02/06/inflation-slows-to-2-8-in-january-slowest-since-october-2020-psa/).
However, ANZ Research noted that consumer’s inflation expectations remained elevated based on the BSP’s Consumer Expectation Survey (CES) results.
It added that the 12-month average inflation rate is still above 4 percent. Data from the Philippine Statistics Authority (PSA) showed inflation in 2023 averaged 6 percent.
“In our view, it will take time for the BSP to cut its policy rate,” according to ANZ Research. “The widening of the trade deficit in late 2023 also points towards renewed current account pressures if relative strength in imports persists.”
The BSP earlier said its hawkish stance remains despite commodity prices slowing to 2.8 percent, the slowest in 39 months or four years.
Based on the PSA, inflation slowed to a rate that is the slowest since October 2020 when inflation averaged 2.3 percent. This is within the BSP’s forecast range of 2.8 to 3.6 percent for January.
However, the BSP said inflation could increase anew and post an average higher than the target range in the second quarter. This, the central bank explained, is due to the impact of El Niño weather conditions and positive base effects.
The BSP sees the slowdown in inflation as mainly due to base effects as well as “some easing of supply constraints affecting key commodities.” Inflation was at 8.7 percent in January 2023 and 3.9 percent in December 2023.
The central bank explained that the country’s inflation outlook remains tilted to the upside. These risks include higher transport charges, increased electricity rates, higher oil prices and higher food prices due to strong El Niño conditions.
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