AYALA-LED BPI has revised its inflation forecast for the year, lowering it to 3.5 percent from 3.7 percent due to a slower outturn for April food inflation.
However, the bank maintains its stance that inflation may exceed four percent from May through July, considering the lasting impact of El Niño largely on food supply, a weaker peso and the adverse effects of elevated global oil prices.
“The breach in the inflation target may be temporary and may be more benign than originally expected, with inflation likely to ease in the second half of the year,” said Emilio Neri Jr., BPI’s lead economist, in a statement.
The country’s inflation rate accelerated for the third month in a row. April’s inflation print slightly quickened to 3.8 percent from 3.7 percent in March.
Food inflation remains a major driver, accounting for 2.3 percent of the 3.8 percent.
April data indicated that rice prices have become more stable, rising only 0.3 percent month-on-month versus an average of 2.1 percent in the past five months.
“Harvest season has reportedly peaked during the period, while importation may have provided some relief as well amid declining global rice prices,” Neri said.
Meanwhile, transport costs picked up as global oil prices rebounded, with the benchmark WTI hitting almost US$90 per barrel at one point given the escalating geopolitical tensions in the Middle East.
“The Inter-Agency Committee on Inflation and Market Outlook has been all hands on deck in addressing the increase in prices and ensuring food security for our people. We have kept inflation within the target band so far despite the ongoing El Niño season, and we will continue to do so while proactively preparing for La Niña,” said Finance Secretary Ralph Recto in a statement.
Cautious approach
Given the April data, Neri said the Bangko Sentral ng Pilipinas (BSP) will likely continue to embrace a cautious approach to monetary policy, by keeping key rates steady in the first half of the year as inflation risks linger.
“The BSP may keep its rates steady in the first half of the year, taking into account a possible above four percent inflation in the second quarter. Rate cuts are possible in the second half of the year once inflation is firmly within the target of the central bank,” said Neri.
However, the economist noted that the timing of future rate cuts and their magnitude also depends on what the Federal Reserve will do.
“If local inflation conditions are right, the BSP will likely respond immediately with rate cuts once the Fed begins its easing cycle,” he said.
The BSP has kept the interest rates at 6.50 percent since Oct. 27, 2023.
“The Monetary Board (MB) deemed it appropriate to maintain the BSP’s monetary policy settings, as the latest projected inflation path shifted slightly higher but remained within target,” the MB said, during its April 8 Monetary Policy stance.
Business owners have been clamoring for the BSP to cut the interest rates to further stimulate economic activities.
Low rates encourage borrowing for both individuals and businesses, as the cost of borrowing money decreases. This can stimulate spending on big-ticket items like homes and cars, as well as investment in business expansion.
The MB said it will consider the latest inflation and first quarter 2024 gross domestic product outturn, among other information, in its upcoming monetary policy meeting on May 16. / KOC