BSP: Lower rice tariffs, negative base effects to support disinflation

February 6, 2025 | 12:00am

MANILA, Philippines — The reduction in rice tariffs and negative base effects are expected to help keep inflation within the Bangko Sentral ng Pilipinas (BSP)’s target range of two to four percent this year, as inflation remains below three percent in January.

The Philippine Statistics Authority yesterday reported that inflation remained unchanged at 2.9 percent in January from a month ago. This is a tad higher than the 2.8 percent clip recorded a year prior.

“The latest inflation outturn is consistent with the BSP’s assessment that inflation will remain anchored to the target range over the policy horizon. The rice tariff reduction and negative base effects are expected to support disinflation,” the central bank said.

However, the balance of risks to the inflation outlook continues to lean toward the upside due to possible adjustments in transport fares and electricity rates this year.

While domestic demand is expected to remain firm, the central bank noted that economic activity could face headwinds from external uncertainties. But easing inflation and an improving labor market should support private domestic spending.

The BSP said it would closely monitor emerging developments and risks to inflation, which will be discussed in the upcoming monetary policy meeting on Feb. 13.

“Looking ahead, the Monetary Board will maintain a measured approach to monetary policy easing to ensure price stability conducive to sustainable economic growth and employment,” the BSP added.

Aris Dacanay, economist for ASEAN at HSBC, said the January inflation came in slightly above market expectations, as the consumer price index (CPI) was widely anticipated to ease last month.

But the slight uptick in inflation is not a cause for concern and would not alter market expectations, he said.

“Regardless of the CPI print, we continue to expect the BSP to cut its policy rate by 25 basis points to 5.5 percent next week,” Dacanay said.

“Inflation is still within the lower-bound range of the BSP’s two to four percent target band, which gives the central bank room to maneuver and slightly shift its focus on growth,” he said.

The decline in core inflation also supports further monetary easing as January core inflation decelerated to 2.6 percent year on year, after accelerating in December.

“Restaurants and accommodation services CPI saw the largest deceleration even amid the price pressures in food. This may suggest weak demand conditions and a squeeze in restaurateur margins,” Dacanay added.

BSP Governor Eli Remolona Jr. earlier said that a 25-basis-point rate cut is “on the table” for the Feb. 13 policy meeting.

The Monetary Board last reduced policy rates by 25 basis points in December 2024, bringing the key rate down to 5.75 percent. The central bank has delivered a total of 75 bps rate cuts since August 2024.