By Luisa Maria Jacinta C. Jocson, Journalist
The Bangko Sentral ng Pilipinas (BSP) is widely expected to keep its policy rate stable for a fourth consecutive meeting, as inFThe situation could accelerate in the coming months.
A Business world A poll last week showed that all 16 analysts surveyed expect the Monetary Board to keep its target repo rate (RRP) at a 17-year high of 6.5% when it meets meeting on Monday April 8.
The BSP increased borrowing costs by 450 basis points (bps) from May 2022 to October 2023 to controlFlation. It has kept its key rates stable since the rate of 25 basis points.Fcycle f rate hike in October.
“We expect the BSP to remain on hold at the next meeting as it evaluates theFlation momentum. The resumption of inflation to 3.7% in March is largely due to the base eFeffects, while sequential momentum remained limited,” Oxford Economics economist Makoto Tsuchiya said in an email.
Headline inflation accelerated for a second consecutive month, rising to 3.7% in March from 3.4% in February. This matched the BSP’s forecast of 3.4 to 4.2 percent and marked the fourth consecutive month that inflation was within the target range of 2 to 4 percent.
Miguel Chanco, Pantheon’s chief economist for emerging Asia, said in an email that the Monetary Board would likely keep rates steady “especially following the recent reacceleration of headlines in 2017.”Flation due to food prices.
Food inflation reached 5.7% in March, its fastest pace in four months, mainly driven by the continued rise in rice prices.
“Although the year-on-year inflation rate of 3.7% in March was slightly below the consensus estimate of 3.8%, indicating that inflationary pressures may be easing, the balance of risks remains at the increase, particularly with the prices of food products and fuel which threaten to balance out. higher,” Rob, chief economist of Security Bank Corp.ert Dan J. Roces said in an email.
China Bank Research said the central bank would keep rates stable due to upside risks.Fsituation continues to persist.
In a statement following the March publication inFAccording to lation data last Friday, the BSP said inflation could temporarily accelerate above the target of 2 to 4 percent in the next two quarters due to the impact of weather conditions on inflation. agricultural production and a positive database.Ffaults.
“The signFThe sharp increase in rice prices and faster rise in food and beverage prices due to adverse weather conditions both locally and from import sources, as well as geopolitical developments threatening fuel and transportation prices , will be closely monitored, as these factors could potentially influenceFsituation higher in the coming months,” Mr. Roces said.
In March, rice inFlation accelerated to 24.4% from 23.7% a month ago, its fastest figure since 24.6% in February 2009.
The dry spell of El Niño has shown signs of weakening but is expected to persist through May, according to the state weather bureau.
The latest data from the Department of Agriculture showed that agricultural damage caused by El Niño amounted to 2.63 billion pesos. Rice was the most affected crop, accounting for P1.72 billion in damage.
“If inflationary pressures intensify, the BSP may be incentivized to continue its hawkish stance to anchor inflation expectations and maintain price stability,” Mr. Roces said.
TARGET
Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said that inFlation could continue to exceed the target range of 2 to 4% in the coming months.
“We anticipate the headlines ofFlation will exceed 4% year-on-year from March with a strong contribution from the CPI (consumer price index) of rice and latent drought.Feffects on the prices of other crops, with in the worst case almost 5%. Our monthly estimates shown inF“Price increases peaked at 5% in May before the deceleration began,” he said in an email.
The BSP hopes toFlation at an average of 3.6% this year.
InFThe situation would only come within the target range by the second half of the year, Philippine National Bank economist Alvin Joseph A. Arogo said.
“In the future, we believe that inFThe situation will accelerate again before settling sustainably within the BSP’s target of 2 to 4% from the fourth quarter, due to the threats of El Niño and the situation in the Middle East.Fescalating crime and the lagged impact of minimum wage increases,” he said in an email.
However, China Bank Research noted that there are other indicators pointing to an easing of price pressures.
“Although we expect higher inflation figures through July, this upward trend is mainly driven by the base eFfaults. In addition, encouraging signs of easing have been observed.Finternal pressures – prices of major food items such as fish, vegetables, eggs and sugar fell in March,” he said.
Colegio de San Juan de Letran Graduate School Dean Emmanuel J. Lopez said theFThe inflation rate is expected to be within target by the end of the year.
“(I) expect the inflation rate to not exceed the BSP target of 2-4 percent at the end of the year, perhaps to 2.8 percent,” he said. he said in an email.
Absent geopolitical risks and further damage from drought, inflation could still remain within target this year, Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said.
“(It could be) brieFly above the BSP inFinflation target at 4% levels from April to August as higher base rates easeFdefects, then return within the BSP inFlation target at 3% levels for most months from August to December,” he said in an email.
AFTER THE FED HIKE
After the recent rise in inflation, analysts said they expected the BSP’s policy decisions to remain in line with those of the US Federal Reserve.
“Fully expecting the BSP to keep rates unchanged with the Fed still on hold and domestic policyFlation close to the upper end of the BSP’s inflation target. We maintain our view that any potential rate cut by the BSP will likely come after a Fed rate cut,” Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila, said in an email. .
The FOMC (Federal Open Market Committee) held firm at its March meeting, keeping its federal funds stable in a range of 5.25% to 5.5%. From March 2022 to July 2023, the Fed increased rates by a total of 525 basis points.
“The BSP ahead of the Fed risks further peso weakness in the short term,” added Patrick M. Ella, economist at Sun Life Investment Management and Trust Corp.
Professor Jesus Felipe of De La Salle University’s School of Economics said any rate cuts would likely be implemented in the second semester.
“The decline in interest rates will begin during the second half of the year. The Monetary Council wants to ensure that inFlation remains within the limits of its objective of 2 to 4%. One way or another, the factors that led to the rise in prices in 2022 (e.g. the war between Russia and Ukraine) remain, and the uncertainty has even increased,” a- he said in an email.
Mr. Ella said the BSP’s first rate cut could come in June, a few days after the Fed’s policy meeting that month.
BSP Governor Eli M. Remolona, Jr. said last month that the Monetary Board was closely watching the Fed’s next moves, but that it did not need to “wait for them” to begin to reduce rates, because its own monetary decisions are independent of the American central. bank.
At the time, Mr. Remolona said the BSP could begin to relax its policies in its upcoming meetings.
However, Sarah Tan, an economist at Moody’s Analytics, said the BSP was unlikely to cut rates in the near future.
“InFWith the situation on a new reacceleration trajectory and likely to exceed the upper limit of the BSP target range in the coming months, rate cuts are not an option. At the same time, the chances of a resumption of monetary tightening are low, given the scale of theFThe situation has subsided from its peak,” she said in an email.