MONETARY authorities will likely start lowering key interest rates next month even if inflation resumes rising, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said.
Consumer price growth slowed for the first time in five months in June, to 3.7 percent from 3.9 percent in May, and kept the year-to-date average at 3.5 percent — within the central bank's 2.0- to 4.0-percent target.
The BSP subsequently said that the inflation outlook had shifted to the downside but warned that food prices, transportation costs, and electricity rates continued to pose risks.
The possibility of July inflation exceeding target, Remolona told reporters on Friday, was already factored in the BSP's outlook and would not reduce the chances of a previously-signaled August easing.
“[W]e already know what the base effects will be [and] since it's expected, it will not change the likelihood of a rate cut,” he said.
July inflation data will be issued on August 6. The BSP's policymaking Monetary Board, meanwhile, will hold its next meeting on August 15.
Favorable second quarter growth results set for release on August 8 could also all but guarantee a rate cut next month.
The June result, Remolona said, “is a cause for reassurance because it seems to be going in the direction we expected.”
“So it's reassuring, but we need a few more numbers … it's not yet time to declare victory, as people say.”
The BSP's benchmark rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of increases beginning May 2022 when inflation started surging in the wake of Russia's invasion of Ukraine.
Remolona has hinted at two rate cuts this year totaling 50 basis points and starting in the third quarter. The Monetary Board's August meeting is the only one scheduled for the period.
This will be followed by two more in the fourth quarter, on October 17 and December 19.
Analysts on Friday said that the possibility of an August easing had increased with June inflation having come in below the market consensus of 3.9 percent and likely slowing further.
“[Friday's] inflation decline, and the anticipated declines in the months ahead, will make it easier for the BSP doves, including Governor Eli Remolona, to argue for rate cuts,” ING Bank in Manila said.
It added that the latest inflation data could help the peso rebound and will be a “key factor to watch when gauging whether or not BSP has the ability to ease rates ahead of the Fed without this spurring unwanted PHP (Philippine peso) depreciation.”
“This will certainly be easier to achieve if it comes against a backdrop of solid growth yet moderating inflation,” it said.
Bank of the Philippine Islands senior economist Emilio Neri said a rate cut was “practically baked in as inflation will likely drop to 3.0 percent or lower by September.”
“FX (foreign exchange) pass-through is unlikely to be a major concern for the monetary authorities for at least six months,” he added.
The “trade-off” of the peso further weakening — it fell to P58:$1 territory in May after Remolona first raised the possibility of an August easing and continues to trade in that level — “seems [to be one] … that the BSP is willing to tolerate for now.”
“The pass-through from the exchange rate to inflation appears to be manageable based on the analysis of the central bank and will only become a concern if the inflation target is at risk again.”
Still, the BSP will likely not cut interest rates “aggressively,” Neri said, particularly given the country's current account deficit.
The currency edged up 5 centavos on Friday to P58.53 against the dollar, its best close in nearly a month.
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