‘June inflation seen to prompt policy rate cuts’
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Fri, 05 Jul 2019 16:17:02 +0000
THE country’s 2.7-percent inflation rate in June gave the Bangko Sentral ng Pilipinas (BSP) room to resume its monetary policy easing as early as August, according to analysts.
In a comment on Friday, ING Bank Manila senior economist Nicholas Antonio Mapa said “ING is penciling in a policy rate cut by the BSP at its August meeting, should inflation continue to show it [would] remain within target and 2Q (second quarter) growth is projected to be soft.”
With the June figure well within the BSP’s 2- to 4-percent target range, he added that the central bank would “likely look to tap on the accelerator once more after having slammed hard on the brakes in the previous year.”
For his part, Capital Economics’ Alex Holmes said “[t]he renewed drop in inflation in June is likely to continue as the headline rate is dragged down by falling food and fuel price inflation, providing a green light for the central bank to cut rates in August.”
The research consultancy firm, he added, expects headline inflation to average just 1.5 percent year-on-year in the second half of 2019, below the central bank’s range.
Banking giant HSBC, meanwhile, said easing inflation and benign inflationary pressures implied that the Bangko Sentral would be focused firmly on economic growth, which was likely to settle below 6 percent in the second quarter.
“We expect the BSP to cut its policy rate by 25 basis points in August, with inflation under control and growth slowing,” HSBC economist Noelan Arbis said.
According to ANZ Research economists Mustafa Arif and Sanjay Mathur, the June rate supports the view that inflation remains on a downtrend.
“A high base effect and weaker demand pressures [would] likely see inflation weaken further in the coming months, perhaps falling below the 2-percent mark,” they said.
“We expect the BSP to cut its policy rate by 25 basis points in August, with inflation under control and growth slowing,” the economists added.
For its part, the BSP said June inflation was in line with its view that inflation would firmly settle within the 2- to 4-percent target range for 2019 and 2020.
“The BSP will keep close watch over latest economic developments to ensure that the monetary policy stance remains consistent with the BSP’s price stability objective while being supportive of economic growth,” Bangko Sentral Governor Benjamin Diokno said in a message to reporters.
And the Department of Finance said “these favorable inflation developments plus the approval of the General Appropriations Act will enable government to boost economic growth in the next quarters.”
Above-target inflation prompted the Bangko Sentral’s policymaking Monetary Board to hike key interest rates five consecutive times last year. It only paused after consumer price growth eased to 6 percent last November from 6.7 percent in September and October.
The Bangko Sentral started easing its monetary policy settings on May 9, but decided to take a “prudent pause” on June 20 by keeping its overnight borrowing, lending and deposit rates at 4.50 percent, 5 percent and 4 percent, respectively.
Despite the pause, monetary authorities cut their 2019 inflation forecast to 2.7 percent from 2.9 percent, and their 2020 projection to 3 percent from 3.1 percent.
Monetary authorities are set to convene again on August 8 for their fifth rate-setting meeting for 2019.
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