August 05, 2019
HEADLINE inflation likely continued to decelerate last month on reduced food and fuel prices, which would allow the Bangko Sentral ng Pilipinas (BSP) to resume slashing interest rates, according to analysts polled by The Manila Times.
Inflation forecasts for July ranged from 2.2 to 2.6 percent with a 2.3 percent average, lower than the 2.7 percent posted in June and the 5.7 percent recorded a year ago.
The Bangko Sentral ng Pilipinas earlier projected the rate of the increase in the prices of goods and services last month to fall between 2 and 2.8 percent.
The Philippine Statistics Authority will release official July inflation data on Tuesday, August 6.
Moody’s Analytics offered the highest inflation projection at 2.6 percent.
“We see CPI (consumer price index) cooling to 2.6 percent in July amid cooler rice and fuel prices. The door is wide open for the BSP to continue with [its] interest-rate cuts” Moody’s Analytics economist Katrina Ell said.
The central bank on May 9 reduced interest rates by 25 basis points (bps) after a series of rate hikes last year on account of easing inflation. It took a “prudent pause” during its meeting on June 20, keeping overnight borrowing, lending and deposit rates at 4.5 percent, 5 percent and 4 percent, respectively.
ANZ Research, HSBC Global Research and Rizal Commercial Banking Corp. (RCBC) forecast inflation to have eased to 2.3 percent.
In a report, ANZ Research said lower transport prices and reduced electricity tariffs helped offset the slight uptick in some food prices.
“We expect headline CPI to have risen by 0.2 percent month-on-month in July. Food prices likely rose in the month, although [those for] staples, such as rice and corn, remain muted,” ANZ Research economist Mustafa Arif said.
“Transport prices are also expected to have contributed positively to inflation in July, while reduced electricity tariffs provided some offset,” he added.
Despite the “sequential rise,” Arif also said inflation was expected to be lower in the next few months on account of a high base during much of the second half of 2018.
For its part, HSBC Global Research said the Bangko Sentral would likely cut policy rates on the back of below-target economic growth and cooling inflation.
“We expect the BSP to cut its policy rate by 25 basis points (bps) to 4.25 percent on August 8. Inflation is likely to decelerate further in 2H19 (second half of 2019), potentially dropping below 2 percent by the end of 3Q (third quarter),” HSBC Global Research said in a report.
Further monetary policy loosening is expected in the quarters ahead, according to HSBC, forecasting the policy rate to be slashed further by 25 bps.
Michael Ricafort, head of RCBC’s Economics and Industry Research Division, also said inflation likely decelerated last month on easing prices of food, especially rice, and a stronger peso exchange rate, among others.
“Some prices of food…already eased after the mild El Niño drought… The Rice Tariffication Law [is] yet to fully take effect, and this could lead to lower rice prices amid increased [imports of the staple] and could support [the easing of inflation further] in the coming months,” he explained.
“[O]ther non-monetary measures of the government since late 2018 to increase the importation and boost [the] local supply of food items, [including] rice, sugar [and] fish, to lower food prices and overall inflation, would help ensure stable food prices and overall inflation in the coming months [and] years,” he added.
Ricafort noted that the peso exchange rate against the US dollar, which has lingered at a little over 51 recently, could further ease prices of imports and help lower overall inflation.
The sharp decline in interest rates would help lower borrowing costs for businesses and consumers, and this could help ease prices and overall inflation, according to him.
Regina Capital Development Corp., offered the lowest outlook at 2.2 percent, with Head of Sales Luis Limlingan saying favorable base effects, lower fuel and food prices, and the appreciation of the peso also served as contributing factors for the projected easing.
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