BSP tipped to pause rate hikes this month
Bangko Sentral ng Pilipinas. (File photo / Philippine Daily Inquirer)
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is tipped to take a pause this month in its current monetary policy tightening cycle, or the series of raising interest rates, after the inflation readout for April showed a downtrend.
The rate of increase in the prices of goods and services that households commonly purchase slowed for the third month in a row to 6.6 percent in April from 8.7 percent in January.
GlobalSource Partners said in a commentary penned by Romeo Bernardo that, likewise, food prices continued to fall for the third straight month.
At the same time, core inflation — which excludes volatile food and energy prices — also slowed down but remained high at 7.9 percent in April from 8 percent in March.
The New York City-based think tank said the slower core inflation pointed to continuing demand-side pressures.
Federal funds rate
“Given the faster-than-expected deceleration in the headline rate, we now expect the average inflation rate for the year to fall below the 6.5 percent we forecasted three months ago, likely within the 5.5 to 6 percent range,” Bernando said.
Meanwhile, he said the Monetary Board (MB) might opt to keep its policy rate steady at their next meeting on May 18 as they would find a difference of 1 percentage point to 1.25 ppt between the policy rate of the BSP and that of the US Federal Reserve “adequate for now.”
The US Fed last week raised the federal funds rate by 0.25 ppt to a range of 5 percent to 5.25 percent. The BSP’s overnight borrowing rate stands at 6.25 percent.
Goldman Sachs, also based in New York, is likewise not forecasting further BSP rate hikes this month.
Peak inflation
This is so considering that “inflation has likely peaked, and policymakers [are] emphasizing the effectiveness of supply-side nonmonetary measures to manage inflation pressures over additional monetary policy tightening.”
Pantheon Macroeconomics, based in the United Kingdom, said the “door was now wide open” for a BSP pause this month.
“Not only did the [April]reading come in comfortably within the BSP’s 6.3 percent-to-7.1 percent forecast range, confirming more conclusively that January saw the peak in the headline rate, but core inflation fell for the first time in over a year, too,” the research firm said.
ING Bank concurs, noting that BSP Governor Felipe Medalla recently indicated that he would be open to a pause at the next policy meeting should inflation slow further.
“Slowing inflation and a relatively stable currency could be enough to convince Governor Medalla to bring his recent tightening cycle to an end,” the Dutch group said.
However, at the business journalism seminar organized by the Economic Journalists Association of the Philippines and San Miguel Corp. held on May 6, MB member Bruce Tolentino said he was expecting rate hikes to continue this month with an increase of 0.25 ppt to 6.5 percent.
