A RATE cut next week has become “a little less likely” after inflation turned out to be higher than expected in July, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said on Tuesday.
Consumer price growth rose to 4.4 percent last month, breaching the BSP’s 2.0- to 4.0-percent target, due to higher energy, water and food prices. It also exceeded the 4.1 percent market consensus but fell within the central bank’s 4.1- to 4.8-percent estimate.
Remolona, who since late May had flagged a possible rate cut on August 15, told reporters that an easing was now “a little bit less likely since inflation is elevated.”
“It’s still worse than expected, but not that bad,” he added.
Inflation is still expected to moderate for the rest of the year and a disappointing second-quarter growth turnout on Thursday could cement a rate cut next week.
“If growth is unexpectedly weak,” Remolona said, and with “our projections of inflation and inflation expectations suggest lower inflation going forward … we can cut.”
Analysts expect gross domestic product (GDP) growth to have hit 6.0 percent, at the bottom end of the government’s 6.0- to 7.0-percent target for 2024 and accelerating from 5.7 percent in the first quarter.
Remolona also said the central bank was “always open” to an off-cycle cut.
ING Manila Bank Head of Research Robert Cornell, meanwhile, said the inflation result could push back “BSP aspirations to cut rates in August.”
“But with the peso gaining some support as the US dollar weakens in the current market volatility, an August cut remains a possibility,” he added.
The peso, which fell to the P58:$1 level in May after Remolona first raised the possibility of an August easing, closed at its strongest in over two months on Monday in P57:$1 territory.
For Pantheon Macroeconomics economist Miguel Chanco, an “August rate cut is now off the table.”
“We still think that 75bp (basis points) worth of cuts is doable by yearend, especially if we’re right about the Fed’s potentially much larger cuts in the fourth quarter, following an initial 25-bp cut in September,” he added.
Chanco now expects a 25 basis point cut on October 17, to be followed by 50 basis points on December 19.
“To be sure, if we’re right about a likely huge miss in Thursday’s Q2 GDP report, then an August cut could come swiftly back into the discussion,” he qualified.
Security Bank Corp. chief economist Robert Dan Roces, for his part, said that Monday’s global stock market rout could provide additional room for the BSP to ease policy.
Second quarter growth will have to be factored in, he added, and the peso’s movements will be a “key consideration.”
“Given this backdrop, the BSP’s August meeting is likely to be a close call between maintaining the current policy rate and implementing a 25-basis point cut,” Roces said.
“Ultimately, the central bank will seek to carefully balance the risks of inflation persistence against the need to support economic growth.”
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