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By Katherine K. Chan
THE BANGKO SENTRAL ng Pilipinas (BSP) might delay additional monetary relaxation in October following an inflation climb to a five-month peak in August, with experts anticipating the central bank to implement its final interest rate reduction for the year in December.
Union Bank of the Philippines (UnionBank) Chief Economist Ruben Carlo O. Asuncion indicated it would be challenging for the BSP to rationalize another decrease in borrowing expenses next month considering the resurgence in price pressures.
“Given the unexpected rise in headline and core inflation, a rate reduction in October seems improbable,” Mr. Asuncion mentioned in an e-mail response to inquiries. “It is difficult to justify a BSP rate cut as both cyclical and structural inflation indicators are trending upwards.”
Security Bank Chief Economist Angelo B. Taningco stated the Monetary Board would likely take a pause in October “due to the escalating inflationary pressures.” “Nonetheless, we still hold our belief that the BSP will execute its fourth 25-basis-point (bp) rate cut for the year in December,” he mentioned in an email.
Headline inflation accelerated to 1.5% in August from 0.9% in July, primarily due to storm-induced increases in vegetable and fish prices. It exceeded market predictions but was slower than the 3.3% recorded a year prior.
The August rate fell within the BSP’s 1-1.8% projection but surpassed the 1.3% median estimate in a BusinessWorld survey of 16 analysts. It also marked the sixth consecutive month that inflation remained beneath the BSP’s 2-4% objective.
For the initial eight months, inflation averaged 1.7%, aligning with the central bank’s forecast for 2025.
Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., remarked that the outcome in August would significantly influence the BSP’s subsequent policy direction.
“While inflation from previous months fell short of analysts’ forecasts, the August figure surpassed expectations,” he stated in a Viber message. “Thus, we might witness a more cautious and measured approach from the central bank concerning the timing of the next rate cut.”
In a report, Deutsche Bank also observed that inflation dangers in the upcoming months could trigger a pause in October, although it still anticipates relaxation to recommence in December.
The BSP lowered the benchmark interest rate by 25 bps to 5% on Aug. 28, marking its third consecutive cut since August 2024. Overall, it has diminished rates by 150 bps during this cycle.
BSP Governor Eli M. Remolona, Jr. previously indicated that there could be the possibility of one more adjustment before the year’s end but emphasized that the easing cycle is nearing completion.
Emilio S. Neri, Jr., chief economist at Bank of the Philippine Islands, noted that the central bank’s position reflects concerns regarding inflationary threats in the following year.
“(Mr. Remolona) is likely anticipating alterations in inflation next year,” he conveyed to Money Talks with Cathy Yang on One News. “We could experience an uptick that may lead to a breach.”
“And if we cannot manage inflation expectations, that may compel the BSP to actually increase rates instead of reducing them,” he added.
Still, he remarked that a cut later this year remains feasible, especially if global circumstances favor a more lenient policy.
FED CUE
Nicholas Antonio T. Mapa, chief economist at Metropolitan Bank & Trust Co., indicated that the Philippine central bank would likely synchronize its decision with the US Federal Reserve’s upcoming policy move and domestic growth statistics.
“We anticipate BSP to await more data points on inflation, observe whether the Fed reduces rates in November, and consider third-quarter GDP (gross domestic product) figures for guidance,” he communicated in a Viber message.
If the Fed resumes easing, domestic growth remains modest, and inflation trends align with the target, the BSP may contemplate another rate reduction before the year concludes, he added.
Mr. Erece mentioned that labor market and growth conditions could substantiate an additional adjustment.
The Monetary Board will convene on Oct. 9 and Dec. 11 for its final two policy assessments this year.
Meanwhile, analysts highlighted the rise in core inflation, which excludes volatile food and fuel elements, as a significant concern. Core inflation climbed to 2.7% in August, the peak in eight months, up from 2.3% in July.
“The primary surprise from our perspective in the latest release is the surge in core inflation to an eight-month high,” Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, commented in a note last week. “It’s important to remember, though, that in the Philippines, core inflation still incorporates some components of food and energy prices.”
Mr. Mapa noted that the increase was driven by specific food items outside the core basket that were impacted by storm damage. “These food items, such as assorted vegetables, appear to have been influenced by the recent series of storms and thus account for a supply-side shock inflation episode,” he stated.
Despite the August increase, core inflation averaged 2.4% from January to August, slower than the 3.2% recorded a year ago.
This indicates that businesses are transferring more costs and demand remains robust, which the BSP is observing closely, Mr. Asuncion noted.
The central bank anticipates full-year inflation to remain below target in 2025 before reverting to within 2-4% by 2026 and 2027. Its forecast for 2026 is now 3.3%, while its projection for 2027 stands at 3.4%.
Pantheon Macroeconomics predicts inflation at 1.8% for this year and 3% in 2026, exceeding its prior estimate of 2.6%. “We continue to believe that the BSP will execute at least one more cut before the conclusion of 2025, by 25 bps, although it is improbable they will act again until December,” Mr. Chanco stated.
UnionBank similarly revised its forecast to 1.8% from 1.6%.
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