PH inflation seen hovering at 2% until year-end

Declining rice prices will help keep inflation “stable” at the 2-percent level for the rest of the year, Metrobank Research said, while also penciling in more rate cuts as the Bangko Sentral ng Pilipinas (BSP) moves to support the economy.

In a commentary, Metrobank explained that lower prices of rice, a major food staple of Filipino households, will help offset potential oil price hikes linked to the geopolitical tensions in the Middle East.

That said, the Ty-led bank maintained its full-year inflation forecast for 2024 at 3.2 percent. Domestic price growth might post a lower average rate of 2.9 percent in 2025, before slightly picking up to 3 percent in 2026, the lender added.

If Metrobank’s predictions come to pass, inflation would stay within the 2 to 4 percent target range of the BSP, allowing monetary authorities to continue trimming borrowing costs in a bid to boost consumption, a traditional growth driver.

Monetary easing

“Rice prices are expected to continue to weigh on headline inflation, driven by lower tariffs and increased local supply following the harvest season,” Metrobank said.

“With the current outlook for “target-consistent” inflation, we believe the BSP should have scope to continue its monetary easing,” it added.

The BSP on Wednesday cut the policy interest rate by a quarter point again to 6 percent, with Governor Eli Remolona Jr. dropping clear hints of additional easing moves this year and in 2025 while aiming for a “measured” shift to a less restrictive monetary policy.

What gave the Philippines enough room to further slash its policy rate was a softening inflation that had retreated to a four-year low of 1.9 percent in September. And with inflation now sitting comfortably within its target range, the BSP is now at a point where it has to relax monetary conditions amid expectations that the economy may grow below target this year.

Remolona said a 25-basis-point (bp) cut at the Dec. 19 meeting of the Monetary Board was “possible.” But he said an outsized half-point reduction was “unlikely” to happen. Overall, the BSP chief did not rule out the possibility of additional cuts cumulatively worth 100 bps in 2025.

At the same time, the “risk-adjusted” inflation forecast of the BSP for 2024 is now at 3.1 percent, better than the previous projection of 3.3 percent and well within the central bank’s 2 to 4 percent target range.

But the BSP slightly raised its risk-adjusted inflation forecast to 3.3 and 3.7 percent for 2025 and 2026, respectively, to account for potential increases in electricity rates and higher minimum wages in areas outside of Metro Manila. Ultimately, the central bank admitted that the balance of risks to the outlook for next year and in 2026 “shifted toward the upside.”

In its commentary, Metrobank maintained its baseline forecast of a cumulative 75 bps worth of easing for the year.

“The recent policy easing, along with the 250-bp reduction in the reserve requirement ratio, should provide a more accommodative policy environment to help boost private consumption and investments, which have been tempered by high interest rates and somewhat elevated inflation,” it added.