December 1, 2023

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BSP pause likely if April inflation eases

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THE PHILIPPINE central bank may consider pausing its monetary tightening next month if April inflation does not accelerate, its governor said on Sunday.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said in a telephone message to Reuters that a pause in interest rate increases was possible “if the April CPI (consumer price index) is not higher than the March CPI.”

Mr. Medalla said a “zero or negative month-on-month inflation” may also support the case for a rate hike pause.

Philippine headline inflation eased for a second consecutive month in March to 7.6% from 8.6% in February. For the first quarter, inflation averaged 8.3%, still higher than the BSP’s 6% full-year forecast.

Since May 2022, the Monetary Board raised key interest rates by 425 bps, bringing the benchmark policy rate to a near 16-year high of 6.25%.   

Some analysts said the BSP may still raise the benchmark interest rate to as high as 6.75% to quell persistent second-round effects as core inflation remains elevated.

However, core inflation quickened to a fresh 22-year high of 8% last month from 7.8% in February.   

“In our view, Bangko Sentral ng Pilipinas is likely to see this pickup as a sign of more persistent second-round effects and is therefore a concern,” Nomura Chief ASEAN (Association of Southeast Asian Nations) Economist Euben Paracuelles and analyst Rangga Cipta said in a note. 

Despite easing headline inflation, Nomura still expects the central bank to hike borrowing costs by 25 basis points (bps) at each of its next two meetings on May 18 and June 22 before pausing. This would bring the key policy rate to 6.75%.

“We think the pickup in core inflation in March will leave BSP uncomfortable with the inflation outlook, with second-round effects likely to be deemed as more persistent and therefore provide scope for a further monetary policy response,” Nomura said.

Nomura noted Philippine core inflation was broad-based, as price increases quickened in…


2023-04-09 12:33:23

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