Key interest rates are expected to remain untouched in the next policy meeting of the Bangko Sentral ng Pilipinas this month on continued slowdown in inflation rate after peaking at 8.7 percent in January 2023, CITI said in a report Wednesday.
“We maintain our expectation that the policy rate would remain unchanged at 6.25 percent at the June 22 meeting, given a steady downward trend in inflation,” CITI economist for the Philippines Nalin Chutchotitham said.
Inflation reached 5.8 percent last year and surpassed the target range of 2 percent to 4 percent. It peaked at 8.7 percent in January 2023, but started to ease to 8.6 percent in February, 7.6 percent in March and 6.6 percent in April.
Inflation slowed further to 6.1 percent in May on slower increases in the prices of transport, food and non-alcoholic beverages. This was the slowest since inflation settled at 6.1 percent in June 2022.
Inflation, however, remained elevated compared to 5.4 percent in May 2022. This brought the average in the first five months to 7.5 percent, above the target range.
Chutchotitham said the key risk factor to watch is the BSP’s response to the Fed’s potential rate hike, although the BSP might have less concerns over interest rate differential with easing actual inflation and foreign exchange volatility.
“We continue to see limited chance of rate cuts before 2024, even if inflation is expected to return to target in Q4’23, since robust economic expansion may cause price pressures to rebuild,” Chutchotitham said.
The economist said universal and commercial bank loans stayed strong, supported by continued expansion of deposits. Meanwhile, manufacturing and services PMI remained in expansionary zone in April and May, but readings were lower than their peaks in the fourth quarter of 2022.
CITI said areas worth monitoring are rice, dairy and rent. Rice inflation has been gradually rising and its 9- percent weight meant a significant contribution, offsetting the effects of lower inflation in meat and fish.