Consumer prices likely rose at its slowest pace on record in May due to cheap fuel, and the lower cost of rice and electricity, relieving pressure on the local central bank to keep up with its American counterpart in hiking rates.
Low inflation in May could also lead to a reduction in key policy rates later this year, should economic growth fall short of expectations, prompting the need for stimulus in the form of cheaper money.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said inflation in May would likely range between 1.6 and 2.4 percent, increasing the likelihood that consumer price hikes would slow down further. In April, inflation stood at 2.2 percent—near the low end of the BSP’s 2015 target range of 2 to 4 percent.
“Going forward, the BSP will continue to keep a watchful eye on the balance of risks in fulfilling its mandate to promote and maintain price stability,” Tetangco said in a statement.
If May’s inflation were to fall within the low end of the target range, the rate of rise in consumer prices could end the year at a record low, according to government data compiled since 2006.
“There’s very little pressure in the near term for monetary authorities to adjust policy rates upwards,” BPI lead economist Emilio Neri Jr. said in an interview.
With inflation continuing to decelerate, the BSP may choose not to hike interest rates even after the US Federal Reserve raises its own benchmarks later this year, he said.
The BSP’s overnight borrowing and lending rates now stand at 4 and 6 percent, respectively.–Paolo G. Montecillo