CONSUMER price growth is expected to slow down in the fourth quarter of this year, potentially leading to more rate cuts, Nomura said in a report.
The Japanese investment bank expects headline inflation in the Philippines to fall below 2.0 percent by the fourth quarter of 2024, reaching the lower end of the Bangko Sentral ng Pilipinas’ (BSP) 2- to 4-percent target.
“Our forecast largely reflects the impact of the cut in rice import tariffs, which BSP also acknowledged today is the main source of downside risk to its forecasts,” Nomura said.
Nomura forecast much lower inflation of 2.3 percent in 2025 from the 2.8-percent inflation forecast this year.
Inflation breached the target last month, reaching 4.4 percent due to power, fuel, water and key food price hikes.
While the central bank already expected inflation to exceed the target, BSP Governor Eli Remolona Jr. said it was “slightly worse than expected” but still see inflation slowing in the coming months.
The BSP chief said that the balance of risks to the inflation outlook continues to lean toward the downside for this year until 2025, expecting it to settle within target until 2026.
The central bank also attributed the positive outlook to lower rice import tariffs, which are expected to ease domestic rice prices by increasing import volumes, similar to what happened after the rice tariffication law was passed.
Executive Order 62, signed last month, reduced rice import tariffs from 35 percent to 15 percent until 2028.
The BSP raised its risk-adjusted inflation forecast for 2024 to 3.3 percent from 3.1 percent, while lowering its 2025 projection to 2.9 percent from 3.1 percent. The central bank also expects inflation to rise to 3.3 percent in 2026.
This year’s baseline forecast was slightly increased to 3.4 percent from 3.3 percent, and the 2025 estimate was adjusted down to 3.1 percent from 3.2 percent. For 2026, the BSP projects inflation to stabilize at 3.2 percent.
Three more cuts before BSP pause next year
The central bank was said to have room for three more rate cuts next year before deciding to keep rates steady, according to Nomura.
“The policy statement and comments during the press briefing were net-net dovish, in our view, with BSP effectively signaling more cuts ahead,” Nomura said.
Nomura argued that the central bank’s statement on slowing inflation suggests that policy decisions will be forward-looking regarding inflation risks.
Hence, they expect two additional 25 basis point cuts in the last two meetings of the year in October and December.
Benchmark rates currently stand at 6.0 percent from the 17-year high of 6.5 percent.
“Beyond that, we also expect BSP to cut in the first three meetings in 2025 before pausing from there,” Nomura said.
This would bring key rates down to 5.0 percent by May 2025, totaling 150 basis points of cuts in this cycle.
“The next moves by BSP will largely be driven by the inflation outlook — if inflation continues on a downward path, BSP can look to further remove the restrictiveness in the monetary stance to support a recovery in domestic demand and overall growth,” Nomura said.
Be the first to comment