Bangko Sentral seen keeping rates unchanged
The Bangko Sentral ng Pilipinas (BSP) will likely keep its monetary settings unchanged during its eighth and last monetary policy meeting for the year on Dec. 17 as consumer price pressures arising from recent typhoons may spill over to this month and January 2021, JP Morgan said.
However, while the jump in the country’s November inflation print will likely keep the BSP on hold for the remainder of this year, JP Morgan sees the policy stance remaining accommodative in 2021, although it thinks that the impact may likely be limited.
In a research note on Friday, JP Morgan said its view was reflected by the BSP governor in late November when he said that “monetary policy is not the only game in town, and so the fiscal side has to pick up.”
The country’s year-on-year inflation rate in November rose to 3.3 percent from 2.5 percent in October. This was the highest since April 2019.
The November inflation was much higher than consensus forecast of 2.6 percent and JP Morgan’s own forecast of 2.5 percent.
“A very sharp increase in food prices, given supply side disruptions from the typhoons, contributed to most of the upside in headline inflation,” JP Morgan said, noting that the month-on-month seasonally adjusted food price increase of 2.2 percent had contributed most to the inflation upsurge.
“The sharp rise in food prices is likely due to supply side disruptions caused by the recent typhoons. While we think these are likely to be transitory in nature, we nudge our headline inflation estimate for December slightly higher, expecting a spillover to next month as well,” the research said.
JP Morgan has adjusted its December inflation forecast to 3 percent from 2.7 percent previously.
“Policy rate cuts have likely run their course. The weak economic recovery and impact of the recent typhoons likely prompted the central bank to preempt the strong headwinds in the coming months and surprised markets with a 25-basis point cut in November to 2 percent, bringing the cumulative easing to 200 basis points year-to-date,” the research said.
On Friday, the BSP said the latest inflation print remained in line with its prevailing assessment that inflation was likely to settle within the lower half of the target band of 2 to 4 percent for 2020 up to 2022.
“Looking ahead, the BSP will remain watchful of economic and financial developments to ensure that its primary mandate of price stability conducive to balanced and sustainable economic growth is achieved,” it added. INQ
