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Hike in BSP rates still possible despite slower inflation

By Joann Villanueva

May 5, 2023, 7:34 pm

<p><strong>POSSIBLE</strong>. A hike in the Bangko Sentral ng Pilipinas (BSP) key rates remains possible due to sticky domestic inflation rate, economists said. This, despite the deceleration for the third consecutive month of domestic inflation rate last April to 6.6 percent.<em> (PNA file photo) </em></p>

POSSIBLE. A hike in the Bangko Sentral ng Pilipinas (BSP) key rates remains possible due to sticky domestic inflation rate, economists said. This, despite the deceleration for the third consecutive month of domestic inflation rate last April to 6.6 percent. (PNA file photo) 

MANILA – A hike in the Bangko Sentral ng Pilipinas (BSP) key rates is still possible despite another deceleration in domestic inflation rate, with economists noting that prices of some commodities remain high and supply issues continue to persist.

The Philippine Statistics Authority (PSA) reported earlier in the day a slower rate of price increases last April to 6.6 percent from the previous month's 7.6 percent.

However, average inflation in the first four months this year is still above the government’s 2-4 percent target at 7.9 percent.

Core inflation, which excludes volatile oil and food items, also posted slower rate of 7.9 percent from 8 percent last March.

Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort, in a report on Friday, eyes sustained deceleration of inflation rate after noting the impact of better weather conditions on farmers ability to achieve better harvest.

He, however, noted the risks from higher rice prices due to the same development overseas given the supply issues as well as higher electricity and utility prices, jumps in the price of pork due to the African swine fever (ASF), and the impact of the looming El Niño.

He said a hike in the central bank’s key policy rates, which have been increased by a total of 425 basis points since May 2022 is still possible given the expectations that inflation would remain elevated in most of this year.

He noted, on the other hand, the possibility of a cut in the BSP’s key rates, as recently signaled by monetary authorities.

He said this is possible "if inflation eases further for four to five straight months, at least; or around June 2023, at the earliest; especially if Fed (Federal Reserve) rate cuts are not yet possible by then."

"But future Fed rate decisions would still be an important consideration in view of the need to maintain comfortable interest rate differentials to help stabilize the peso exchange rate (if the peso becomes volatile), import costs/prices, and overall inflation," he said.

Relatively, Bank of the Philippine Islands (BPI), in a report, forecasts sustained deceleration of domestic inflation rate if decline in the prices of commodities in the global markets continues.

It, however, pointed out that return of inflation rate to within the government’s target band is expected to be gradual "since it may take some time for second round effects to dissipate."

It said "the BSP may justify a pause in its rate hikes considering the current path of headline inflation", which slowed for the third consecutive month last April.

"However, we are not counting out another hike in the upcoming meeting since core inflation remains elevated. Second round effects have persisted and this may require additional tightening," it added. (PNA) 

 

 

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