THE BANGKO SENTRAL ng Pilipinas (BSP) is anticipated to reduce policy rates by 25 basis points (bps) this month and again in August, as inflation stabilizes beneath the 2-4% target for the year, according to Deutsche Bank.
“Our primary assumption is for 25-bp reductions in the upcoming meetings in June and August,” stated Deutsche Bank Research Economist Junjie Huang in a report.
The Monetary Board reinitiated its rate reduction cycle in April, bringing down the benchmark rate by 25 bps to 5.5%. The central bank has decreased borrowing costs by a total of 100 bps since it began its easing measures in August of the previous year.
Deutsche Bank indicated that the likelihood of inflation surpassing the central bank’s 2-4% target “remains minimal.”
“Full-year inflation for 2025 is at risk of falling below BSP’s 2-4% target range,” it noted. “We have recently revised our forecast downward to 1.9% from 2.4%.”
The BSP anticipates inflation to average 2.3% this year. Headline inflation eased to 1.4% in April, resulting in a four-month average of 2%.
Inflation was noted at 1.3% last month, based on a median estimate from 17 economists in a BusinessWorld poll last week. The government is scheduled to release May’s inflation data on Thursday.
BSP Governor Eli M. Remolona, Jr. previously remarked that declining inflation has provided them with “ample space” to implement rate cuts this year. He mentioned they could execute two additional rate reductions this year, in “incremental steps” of 25 bps.
The Monetary Board’s forthcoming policy assessment is set for June 19, followed by three additional meetings in August, October, and December.
Deutsche Bank asserted that the favorable inflation outlook would be aided by low rice pricing.
“Rice prices are likely to remain suppressed due to a global supply surplus and the introduction of P20 per kilogram subsidized rice, alongside the reduction in rice tariffs set for June 2024, which will continue its impact,” it added.
In April, rice prices saw a drop of 10.9% following a decrease of 7.7% in March.
The average cost of a kilo of regular milled rice fell 13.3% year on year to P44.45 in April, while well-milled rice decreased by 10.4% to P50.54, and special rice dropped 6.2% to P60.69 per kilo, according to data from the local statistics agency.
“Moreover, declining global oil prices could help contain domestic fuel prices in the Philippines,” remarked Mr. Huang.
Oil prices surged by more than $1 a barrel on Monday after the oil-producing coalition, the Organization of the Petroleum Exporting Countries and their allies (OPEC+), decided to increase production in July by the same volume as in the prior two months, easing concerns for those anticipating a larger increment, as reported by Reuters.
Brent crude futures increased by 2.33% or $1.46, reaching $64.24 a barrel by 6:26 a.m. GMT after settling 0.9% down on Friday. US West Texas Intermediate crude was priced at $62.45 a barrel, climbing 2.73% or $1.66 after a 0.3% decrease in the previous session. Both contracts experienced a decline of over 1% last week.
On Saturday, OPEC+ agreed to boost output by 411,000 barrels per day in July, marking the third consecutive month the group raised it by the same amount, as they aim to reclaim market share and penalize those who overproduce. The group had been expected to consider a larger production increase.
Oil prices had been decreasing over the preceding weeks as investors awaited the latest announcement concerning OPEC+ production hikes. — Luisa Maria Jacinta C. Jocson