1 month ago
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Private-sector economists polled by Manila Bulletin are expecting the Philippine central bank to continue reducing key interest rates during the upcoming monetary policy meeting as majority of expectations leaned towards inflation slowing slightly in January.
Economists monitoring the economic development in the Philippines anticipate the increase in consumer prices to have accelerated at a slower pace in January compared to the December print of 2.9 percent.
Of the 11 economists, the median inflation forecast was 2.8 percent, reflecting improved supply conditions, with lower rice prices and electricity rates helping offset higher costs of food, fuel, and water.
Germany-based Deutsche Bank said that the local inflation is expected to ease to 2.7 percent “as supply conditions gradually normalize after the weather-related disruptions late last year.”
Six other economists predicted inflation to clock in slower than December’s, including Michael S. Ricafort (chief economist at Rizal Commercial Banking Corp.), Angelo Taningco (chief economist at Security Bank Corp.), Ser Percival K. Peña-Reyes (director at the Ateneo Center for Economic Research and Development), Sarah Tan (Moody’s Analytics economist for the Philippines), Chinabank Research, and Jonathan Ravelas (senior adviser at Reyes Tacandong & Co. and managing director of e-Management for Business and Marketing Services).
While seven economists forecasted a slower January inflation, three economists projected a three-percent inflation rate last month, including Bank of the Philippine Islands (BPI) lead economist Emilio S. Neri, Jr., Philippine National Bank (PNB) chief economist Alvin Arogo, and think tank Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco.
According to Neri, stable rice prices and manageable global commodity costs have kept food, transport, and utility inflation in check, thus a hairline increase in overall prices.
Alex Holmes, Economist Intelligence Unit (EIU) regional director for Asia, gave the highest forecast of 3.3 percent but expects this rate to fall below three percent in February.
Neri noted that “the January inflation print is crucial as this might influence the policy decision of the BSP [Bangko Sentral ng Pilipinas] on February 13.”
The Philippine Statistics Authority (PSA) will release January’s consumer price index (CPI) report today, Feb. 5. A week later, the Monetary Board (MB) will conduct its first monetary policy meeting for 2025.
Another 25 bps cut
Neri stated that aside from the “disappointing” gross domestic product (GDP) growth rate in 2024, a lower-than-expected inflation rate for January would justify a further reduction in the key borrowing costs.
2024 Philippine economy clocked in at 5.6 percent, below the market expectations and below the government target of 6.0 to 6.5 percent growth target.
That said, Deutsche Bank expects the BSP “to continue cutting its policy rate in February and April in 25bps steps to support growth.” This suggests 50 basis points in cut for the first half of 2025.
Alongside Deutsche Bank, Taningco and Chanco also look forward to another 25 basis-point cut during the Feb. 13 monetary policy meeting.
“A deeper slowdown increases the likelihood of more cuts later in the year, though BSP will have to remain watchful of external pressures, especially on the peso,” the bank said.
Likewise, Neri said that “aggressive rate cuts from the BSP may exert pressure on the peso, which may contribute to inflation expectations.” This comes as the economist continues to see possible “risks that could limit the BSP’s rate cuts to just 50 bps this year.”
According to Neri, the country’s wide account deficit keeps the local currency exposed to external risks, including U.S. Federal Reserve moves and policies under the recently inaugurated U.S. President Donald Trump.
Meanwhile, Holmes leans on the likelihood of the central bank pausing its easing cycle, citing the successive reductions in the recent meetings. The key policy rate was trimmed by a total of 75 basis points, settling at 5.75 percent last year.
The pause, Holmes said, would give the central bank “time to pause and assess the impacts of monetary easing so far.”
“We do however expect the BSP to continue easing gradually throughout the remainder of 2025,” he concluded.
