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Philippines: Slower June inflation opens room for rate cuts
MANILA, Philippines — The slower than expected inflation in June should give the Bangko Sentral ng Pilipinas (BSP) some room to adjust rates to support economic recovery.
In its weekly outlook, London-based Capital Economics insisted that the BSP would resume its easing cycle by September.
The market consensus expects the central bank to keep rates unchanged for the rest of the year.
“Inflation fell back in June and is likely to decline further over the coming months, which should open the door for rate cuts to support the struggling economy,” economist Alex Holmes said.
Inflation eased to 4.1 percent in June, the slowest in six months, after being stuck at 4.5 percent in the three previous months.
A major contributor to the downtrend was the deceleration of transport costs, which would likely continue as last year’s low base drops out of the annual comparison.
Food inflation is also seen slowing further in the months ahead as pork supply is boosted by additional importation at low tariff rates.
Capital Economics said this would allow headline inflation to drop to around two percent by yearend and settle for a 2021 rate of 3.7 percent, within the two to four percent target of the BSP.
“Worries about inflation have prevented the central bank from cutting rates this year. But if our inflation projections are correct, the BSP is likely to act soon,” Holmes said.
“We have a 25-basis-point rate cut pencilled in for the BSP’s September meeting,” he said.
The BSP has been keeping interest rates at record lows for the past seven months as it helps the economy recover following a record 9.6 percent economic slump in 2020, the worst in decades.
The central bank last adjusted interest rates in November 2020 with an unexpected 25-basis-point rate cut.
Source: https://www.philstar.com/business/2021/07/12/2111786/slower-june-inflation-opens-room-rate-cuts