‘No rate cuts yet amid lower inflation’

MANILA  -The policy rate of the Bangko Sentral ng Pilipinas (BSP) is expected to remain at 6.25 percent for the rest of the year before decreasing significantly through 2024 as prices of goods and services continue to be buoyed upward, according to Citi group.

Nalin Chutchotitham, Citi economist for the Philippines, said in a commentary that inflation across the archipelago continued to receive upward pressure from food supply constraints, the potential impact of El Niño, and possible wage and transport fare hikes.

Headline inflation has been receding month after month from 8.7 percent in January to 5.4 percent in June. Market analysts and even the BSP itself expect the July readout to fall below 5 percent.

READ: PH inflation in July pegged at 5%

The Philippine Statistics Authority is scheduled to announce official data today, Aug. 4.

Chutchotitham said inflation is on an easing trend towards the policy target range of 2 percent to 4 percent, which the monthly print is expected to enter by the fourth quarter.

“We maintain inflation forecasts at 5.5 percent for (full year) 2023 and 2.9 percent for 2024,” Nalin said.

“[But] we continue to monitor upside risks, given robust domestic demand, recent 7 percent minimum wage hike in Manila effective July 16, as well as increases in transport fares,” she said. “Potential shocks, such as El Nino, could also change agriculture output and food inflation’s trajectory.”

Further, Nalin forecasts that while the monetary policy might remain tight for the remainder of this year, the benchmark rate is tipped to decrease in early 2024 and shed a total of 1.75 percentage point to end next year at 4.5 percent.

READ: Philippines central bank hopes to cut rates in 2024, flags RRR reduction

Meanwhile, Citi expects domestic demand to remain resilient so they maintained their gross domestic product growth forecasts for 2023 at 5.9 percent and for 2024 at 6.1 percent.

Nalin observed that in the BSP’s second-quarter consumer and business sentiment surveys, the private sector’s economic confidence remained little changed.

She said that the continued fall in the unemployment rate—pegged at 4.3 percent in May—and minimum wage hikes were positive signs for consumer spending.

“We note that foreign direct investment and investment promotion approvals remained quite subdued in the first quarter of 2023, partly due to global uncertainties,” she said.

“Still, a strong pipeline of infrastructure projects could provide momentum in the coming quarters,” she added.