BSP signals more rate cuts after soft June inflation data
Manila, Philippines – The Bangko Sentral ng Pilipinas has signaled more rate cuts in the wake of soft inflation data in June that cemented the outlook that falling rice prices could mitigate the inflationary risk from volatile energy costs.
Inflation, which measures the pace at which prices of goods and services rise, hardly moved in June, settling at 1.4 percent from May’s 1.3 percent, to bring the year-to-date average to 1.8 percent.
The June data alone was within market expectations, while the six-month tally is giving the central bank more flexibility to keep the economy humming.
“Inflation is projected to remain below the lower end of the target in 2025, primarily due to the continued easing of rice prices,” the BSP said in a statement, referring to its 2 percent to 4 percent inflation target band for the year.
Rice deflation persisted in June, at a steeper -14.3 percent versus May’s -12.8 percent after a mix of government intervention that forced retailers to offer the grain at a lower cost.
“What we’re expecting [is that] rice inflation will continue to be negative until the end of the year. Malaki ang weight ng bigas sa [Rice is a heavyweight in the] inflation basket,” National Statistician Dennis Mapa told a press briefing.
Economists earlier forecast oil’s upsetting domestic pump prices would be short-lived especially after an Israel-Iran ceasefire pared the commodity’s price rally.
Transport inflation accounted for about a quarter of inflation’s uptick in June, but on a net basis, it still is in negative territory at -1.6 percent, from -2.4 percent in May.
Mapa said inflation “in general” could settle within the “vicinity” of 2% or less for the remainder of the year. His remarks reflect central bank rhetoric.
“On balance, a more accommodative monetary policy stance is warranted,” the BSP said in a statement on Friday.
The central bank has so far delivered two rate cuts this year to bring its key policy rate to 5.25 percent. Economists polled by NewsWatch Plus expect the BSP to cap the year with up to two more rate cuts.
Its easing cycle will take some time to find its way into the financial system, just in time to cushion the Philippine economy from a potential slowdown unleashed by uncertainties over US trade policy and geopolitical conflict in the Middle East.
“Emerging risks to inflation from rising geopolitical tensions and external policy uncertainty will require closer monitoring, alongside the continued assessment of the impact of prior monetary policy adjustments,” the BSP said.
