BSP: Rate cut hinges on 6-months low inflation


THE Bangko Sentral ng Pilipinas (BSP) may reduce interest rates after six consecutive months of low inflation, similar to the recent month-on-month decline recorded in March.

In the Philippine Economic Briefing (PEB) in Washington on the sidelines of the World Bank-International Monetary Fund (IMF) Spring meetings, BSP Governor Felipe M. Medalla also said the Monetary Board may find good reason to pause if April continues the March inflation trend.

Based on his presentation, Medalla said, inflation month-on-month has been encouraging, especially in February when there was a slowdown by 0.3 percent as opposed to January, which saw a 1-percent increase in month-on-month inflation.

“You need more good data points for cuts. For a pause you need one more because we already have two good data points,” Medalla said in a press briefing. “[Cutting rate?] if we get six straight month-on-month below 0.2, why not?”

Medalla said since inflation in March was at the low end of BSP’s inflation expectations for the month, there is a need to revise inflation targets.

“The price index in March is actually slightly lower than the price index in January. Of course, January is a busier month than March so if you adjust for seasonality, practically there’s zero inflation between January and March,” Medalla said.

Upside risks

Nonetheless, the BSP is cognizant of the upside risks to inflation. The global environment is one since prices around the world are on the rise.

For the Philippines, domestic risks include weather which can always make agriculture products more expensive. This is one of the reasons the government aims to be more prepared in issuing import permits to prevent shortages.

Medalla said other unforeseen events on the horizon could cause inflation to rise. Despite these risks, the government remains confident that inflation will be within the 3-plus or minus-one range, he said.

Earlier, Medalla said inflation had cooled to 7.6 percent in March from 8.6 percent in February while the month-on-month data showed inflation contracted 0.2 percent.

BSP’s target, he said, is for inflation to be at 2 to 4 percent or 3 percent plus or minus one by next year. This means, the month on month decline in inflation places the country on track to meet its target for next year.

Since May 2022, the BSP has raised key policy rates by 425 basis points. Despite this, core inflation is still increasing and posted an 8-percent growth in March, a 24-year high. (Full story: