EMERGING risks to inflation and a tentative outlook for export growth may push back any decision of the Monetary Board to cut key interest rates in the country this year, according to ANZ Research.
In its latest Asian Economic Outlook, ANZ Research said the gradual retreat in the increase in commodity prices was largely due to “favorable base effects.”
Inflation has been within the BSP’s 2 to 4 percent target for the past three months. Inflation was above eight percent starting December 2022 until February 2023.
“We do not see any urgency for the Bangko Sentral ng Pilipinas to cut rates, considering the renewed current account pressures and the domestic inflation situation,” ANZ Research said. The data showed inflation slowed to 3.9 percent, 2.8 percent, and 3.4 percent in December 2023, January 2024, and February 2024, respectively.
Inflation was at 8.1 percent, 8.7 percent, and 8.6 percent in December 2022, January 2023, and February 2023, respectively
“The sequential momentum, however, remains elevated at 0.6 percent [January- February 2024 average]. If persistent, this could push the annual print above 4 percent, near term,” ANZ Research said.
“For headline inflation to be sustainably below 4 percent, month-on-month gains in both food and core prices need to retreat,” it added.
In terms of the current account, ANZ Research said, is expected to moderate compared to the “trade shock” experienced in 2022 and 2023. However, export performance remains to have a tentative outlook.
While services exports are expected to remain robust on the back of higher revenues from the tourism and business process outsourcing sectors. However, due to the uncertainties in goods export performance, ANZ Research said the 2024 current account deficit is forecast to slow to 2.4 percent of GDP versus 2.6 percent in 2023.
“We are wary of the real strength in this recovery. In level terms, exports continue to decline. The global semiconductor upcycle has not yet benefited the Philippines’ technology exports and is indicative of the weakening relationship between the two,” ANZ Research said.
Given these, ANZ Research said the economy’s growth is still expected to be below 6 percent this year and next year.
The think tank said GDP is expected to post a growth of 5.7 percent this year and 5.9 percent next year. In 2023, the economy grew 5.6 percent.
The target of the government is to attain a growth of 6.5 percent to 7.5 percent this year. However, Socioeconomic Planning Secretary Arsenio M. Balisacan believe a GDP growth of 6 percenrt remains feasible for the year. (See: https://businessmirror.com.ph/2024/03/13/global-slowdown-justifies-lower-growth-targets/).
Earlier, BSP Governor Eli M. Remolona Jr. said inflation in March may have been around 3.9 percent. (See: https://businessmirror.com.ph/2024/03/21/bsp-inflation-could-have-hit-3-9-in-march/).
The BSP’s inflation target is 2 to 4 percent for 2024. Inflation in February increased to 3.4 percent from 2.8 percent in January. Inflation was at 7.6 percent in March 2023.
However, the National Economic and Development Authority (Neda) does not expect inflation to exceed 3.4 percent in March 2024, given the slower-than-expected progress on the legislated wage.
Balisacan told reporters that the legislated wage being proposed by the Senate of the Philippines and the House of Representatives has the potential to fan inflation. (See: https://businessmirror.com.ph/2024/03/22/wage-bills-delay-may-temper-march-inflation/).
The Neda Secretary reiterated the oversight agency’s position that wages should be set through a tripartite decision between the government, employers, and workers.
Balisacan added that the recent growth of the economy has benefited workers nationwide, indicating that wages have somewhat caught up with the needs of workers.