tober<\/span> 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.<\/p>\nUnion 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.<\/p>\n
\u201cGiven the unexpected rise in headline and core inflation, a rate reduction in October seems improbable,\u201d Mr. Asuncion mentioned in an e-mail response to inquiries. \u201cIt is difficult to justify a BSP rate cut as both cyclical and structural inflation indicators are trending upwards.\u201d<\/p>\n
Security Bank Chief Economist Angelo B. Taningco stated the Monetary Board would likely take a pause in October \u201cdue to the escalating inflationary pressures.\u201d \u201cNonetheless, we still hold our belief that the BSP will execute its fourth 25-basis-point (bp) rate cut for the year in December,\u201d he mentioned in an email.<\/p>\n
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.<\/p>\n
The August rate fell within the BSP\u2019s 1-1.8% projection but surpassed the 1.3% median estimate in a BusinessWorld<\/i> survey of 16 analysts. It also marked the sixth consecutive month that inflation remained beneath the BSP\u2019s 2-4% objective.<\/p>\n
For the initial eight months, inflation averaged 1.7%, aligning with the central bank\u2019s forecast for 2025.<\/p>\n
Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., remarked that the outcome in August would significantly influence the BSP\u2019s subsequent policy direction.<\/span><\/p>\n\u201cWhile inflation from previous months fell short of analysts\u2019 forecasts, the August figure surpassed expectations,\u201d he stated in a Viber message. \u201cThus, we might witness a more cautious and measured approach from the central bank concerning the timing of the next rate cut.\u201d<\/p>\n
In a report, Deutsche Bank also observed that inflation dangers in the upcoming months could trigger a pause in October, although it still anticipates <\/span>relaxation to recommence in December.<\/span><\/p>\nThe 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.<\/span><\/p>\nBSP 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.<\/p>\n
Emilio S. Neri, Jr., chief economist at Bank of the Philippine Islands, noted that the central bank\u2019s position reflects concerns regarding inflationary threats in the following year.<\/p>\n
\u201c(Mr. Remolona) is likely anticipating alterations in inflation next year,\u201d he conveyed to Money Talks with Cathy Yang<\/i> on One News. \u201cWe could experience an uptick that may lead to a breach.\u201d<\/p>\n
\u201cAnd if we cannot manage inflation expectations, that may compel the BSP to actually increase rates instead of reducing them,\u201d he added.<\/p>\n
Still, he remarked that a cut later this year remains feasible, especially if global circumstances favor a more lenient policy.<\/p>\n
FED CUE
\n<\/b>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\u2019s upcoming policy move and domestic growth statistics.<\/p>\n
\u201cWe 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,\u201d he communicated in a Viber message.<\/p>\n
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.<\/p>\n
Mr. Erece mentioned that labor market and growth conditions could substantiate an additional adjustment.<\/p>\n
The Monetary Board will convene on Oct. 9 and Dec. 11 for its final two policy assessments this year.<\/p>\n
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.<\/p>\n
\u201cThe primary surprise from our perspective in the latest release is the surge in core inflation to an eight-month high,\u201d Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, commented in a note last week. \u201cIt\u2019s important to remember, though, that in the Philippines, core inflation still incorporates some components of food and energy prices.\u201d<\/span><\/p>\nMr. Mapa noted that the increase was driven by specific food items outside the core basket that were impacted by storm damage. \u201cThese 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,\u201d he stated.<\/p>\n
Despite the August increase, core inflation averaged 2.4% from January to August, slower than the 3.2% recorded a year ago.<\/p>\n
This indicates that businesses are transferring more costs and demand remains robust, which the BSP is observing closely, Mr. Asuncion noted.<\/p>\n
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%.<\/p>\n
Pantheon Macroeconomics predicts inflation at 1.8% for this year and 3% in 2026, exceeding its prior estimate of 2.6%. \u201cWe 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,\u201d Mr. Chanco stated.<\/p>\n
UnionBank similarly revised its forecast to 1.8% from 1.6%.<\/p>\n
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