August interest rate cut now less likely — BSP

By Ralph Harvey Rirao

Bangko Sentral ng Pilipinas (BSP) Governor and Monetary Board chairman Eli Remolona Jr. said Tuesday an interest rate cut in August 2024 is now “less likely” after inflation rate climbed to 4.4 percent in July, which is above the target range.

“[It is now] less likely because of the inflation, but we have to look at other numbers,” Remolona said.

The Philippine Statistics Authority reported that July inflation picked up from 3.7 percent in June, but was slower than 4.7 percent a year ago.

The BSP said the latest inflation outturn was consistent with its latest assessment that consumer prices likely rose faster in July.

Remolona said, however, the actual figure was slightly worse than expected. “The 4.4 percent included the base effect of 0.3 percent. So without the base effect, it’s really 4.1 percent, which is still worse than expected but not that bad. It slightly breached the ceiling,” Remolona said, referring to the target range of 2 percent to 4 percent.

Remolona said the BSP was also studying various data on whether a monetary easing this month would be justified.

“The Monetary Board will consider the latest inflation outturn as well as the Q2 2024 national accounts in its assessment of the inflation outlook and the balance of risks in the August 2024 monetary policy meeting,” the BSP said in a statement.

The Philippine Statistics Authority will release the second-quarter economic data this month.

Finance Secretary Ralph Recto, a member of the Monetary Board, said the inflation rate in July was likely a one-time off because of the high base effects.

“Inflation rate is expected to stabilize and fall within target for the rest of the year as the impact of government interventions, particularly the reduced rice tariffs, will be more pronounced starting this August. Although, we might see slight increases in vegetable prices due to damages brought by Typhoon Carina in the agriculture sector,” Recto said.

Bank of the Philippine Islands said despite the recent uptick in inflation, the outlook remained favorable.

“Taking into account the latest data, we expect inflation to go down to 3.7 percent in August and 2.8 percent in September. Rice production is expected to recover with the conclusion of El Nino, which could potentially pull down prices. The price decrease could be further accelerated by the recent rice tariff cuts that the government has implemented,” BPI said.

“The probability of a rate cut from the BSP in August has declined now that headline inflation is once again above its target. Nevertheless, we maintain our view that rate cuts are on the horizon given the favorable outlook for inflation. The recent drop in core inflation to 2.9% supports the argument for a potential rate cut in the coming months,” BPI said.