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Philippines: Rate cuts still possible despite inflation spike
MANILA, Philippines — The spike in inflation in January made it likely that the Bangko Sentral ng Pilipinas might take a pause in its easing cycle but further rate cuts later in the year could still be possible as the economy still needs support, said London-based Capital Economics.
In a research brief over the weekend, the think tank said while inflation was expected to remain elevated in the coming months, price pressures would likely fall back later in the year and prompt the central bank to resume its easing cycle.
Inflation breached the upper end of the central bank’s target range of four percent this year, jumping to 4.2 percent in January from 3.5 percent in December after food and transport prices rose sharply.
The spike in meat prices was driven by the unsupressed African swine fever (ASF) outbreak. The government has so far committed to increase pork imports to ease shortages.
Fuel and transport price inflation is also expected to rise sharply as oil prices recover from last year’s slump.
“The headline rate is set to climb further in the coming months. This should give the central bank reason to pause its easing cycle for now…But with price pressures set to fall back later in the year and the economy in need of further support, we still expect more cuts,” said Capital Economics.
Fuel and transport inflation is also seen to drop back beginning in the second quarter.
High prices of fish and vegetables, caused by typhoons last year, will also likely ease as supply improves.
Capital Economics said rate cuts of up to 50 basis points is still possible within the year as economic recovery would likely be slow this year.
“A failure to contain the virus, economic scars from the pandemic and lacklustre fiscal support mean the recovery will continue to underwhelm in the quarters ahead,” said the brief.
Source: https://www.philstar.com/business/2021/02/07/2075830/rate-cuts-still-possible-despite-inflation-spike