DECLINING rice prices will help keep inflation “stable” at the 2-percent level for the rest of the year, Metrobank Research said, while also penciling in more rate cuts as the Bangko Sentral ng Pilipinas (BSP) moves to support the economy.
Lower prices of rice, a major food staple of Filipino households, will help offset potential oil price hikes linked to the geopolitical tensions in the Middle East, said Metrobank in a commentary.
If these predictions come to pass, inflation would stay within the 2 to 4 percent target range of the BSP, allowing monetary authorities to continue trimming borrowing costs in a bid to boost consumption, a traditional growth driver.
“Rice prices are expected to continue to weigh on headline inflation, driven by lower tariffs and increased local supply following the harvest season,” it said.
“With the current outlook for “target-consistent” inflation, we believe the BSP should have scope to continue its monetary easing,” the bank added.
The BSP on October 16 cut the policy interest rate by a quarter point again to 6 percent, with Governor Eli Remolona Jr. dropping clear hints of additional easing moves this year and in 2025 while aiming for a “measured” shift to a less restrictive monetary policy.
What gave the Philippines enough room to further slash its policy rate was a softening inflation that had retreated to a four-year low of 1.9 percent in September. And with inflation now sitting comfortably within its target range, the BSP is now at a point where it has to relax monetary conditions amid expectations that the economy may grow below target this year.
Remolona said a 25-basis-point (bp) cut at the Dec. 19 meeting of the Monetary Board was “possible.” But he said an outsized half-point reduction was “unlikely” to happen. Overall, the BSP chief did not rule out the possibility of additional cuts cumulatively worth 100 bps in 2025.
At the same time, the “risk-adjusted” inflation forecast of the BSP for 2024 is now at 3.1 percent, better than the previous projection of 3.3 percent and well within the central bank’s 2 to 4 percent target range.
But the BSP slightly raised its risk-adjusted inflation forecast to 3.3 and 3.7 percent for 2025 and 2026, respectively, to account for potential increases in electricity rates and higher minimum wages in areas outside of Metro Manila. Ultimately, the central bank admitted that the balance of risks to the outlook for next year and in 2026 “shifted toward the upside.” (Ian Nicolas P. Cigaral © Philippine Daily Inquirer)
