MANILA – The continued deceleration of the Philippines’ inflation rate is a non-issue vis-à-vis the central bank’s key policy rates but a possible rate cut is projected this month after the government reported a record-high unemployment rate last April.
In a report on Friday, ANZ Research said the deceleration of domestic inflation rate last May to 2.1 percent from the previous month’s 2.2 percent “remains a non-issue for monetary policy at this stage.”
“Of greater importance is for monetary policy to support growth, either directly or via assisting smooth funding of the various fiscal measures to support growth,” it said.
On the other hand, ANZ Research cited the 17.7 percent unemployment rate in the fourth month this year, which the Philippine Statistics Authority (PSA) already reported Friday.
This report, it said, shows that “the pressure on the real economy is becoming very evident.”
“Depending on the durability of higher unemployment, the impact on aggregate demand could be very significant,” it said.
ANZ Research, however, noted that Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno has repeatedly indicated readiness to further ease the central bank’s key policy rates to further help support domestic growth amid the impact of the global pandemic.
To date, the central bank’s overnight reverse repurchase (RRP) rate is 2.75 percent, the overnight lending rate is 3.25 percent, and the overnight deposit rate is 2.25 percent.
These have been cut by a total of 125 basis points since the start of the year to support domestic growth as the inflation rate continues to slow down.
The BSP’s policy-making Monetary Board (MB) will have its fourth rate-setting meet for the year on June 25.
Meanwhile, ING Bank Manila senior economist Nicholas Mapa, in a report, said the further slowdown of the May 2020 inflation rate gives monetary officials further scope to reduce the key rates.
“Decelerating inflation and the need to provide additional stimulus to an economy headed for a recession sets up a possible BSP rate cut at the 25 June meeting as unemployment data surged to 17.7 percent,” Mapa said.
He noted that Diokno has continuously said the BSP has elbow room to reduce further the key policy rates because of a benign inflation outlook for the year.
“Although we believe that the central bank will carry out at most a 25 bps rate cut before pausing for the rest of the year to keep real policy rates positive,” Mapa added. (PNA)
