As expected, Philippines BSP (central bank) has kept the policy interest rate unchanged at 6.50% on 8 Apr 2024. BSP’s inflation expectations has shifted slightly higher but remains within target as both baseline and risk-adjusted inflation forecasts are raised slightly to 3.8% for 2024 (15 Feb 2024: 3.6%) and 4.0% (15 Feb 2024: 3.9%), respectively. Mayank IB said it continues to expect BSP to start cutting the policy rate in 3Q 2024 from 6.50% to 5.75% by end-2024.
Risk-adjusted inflation forecasts raised for 2024 but no change for 2025 BSP’s inflation baseline projection for 2024 was raised to 3.8% (2023: +6.0%) from 3.6% forecast made in the Feb 2024 meeting following the reacceleration in monthly headline inflation rate year-to-date (Mar 2024: +3.7% YoY; Feb 2024: +3.4% YoY; Jan 2024: +2.8% YoY) that was mainly due to pick up in FNAB inflation which rose to +5.6% YoY (Feb 2024: +4.5% YoY; 2023: +7.9%) attributed to higher prices of rice and meat. Rice prices rose +24.4% YoY in Mar 2024 (Feb 2024: +23.7% YoY; 2023: +8.1%) and BSP acknowledged rice as the single commodity that has significant influence on inflation expectations. Nevertheless, core inflation rate moderated further to +3.4% YoY (Feb 2024: +3.6% YoY; Jan 2024: +3.8% YoY; 2023: +6.6%), Meanwhile, headline inflation rate forecast for 2025 was unchanged at 3.2%. The upside risks to inflation include higher transport charges, electricity rates, oil and domestic food prices plus the additional impact from strong El Niño conditions on overall food prices. However, mitigation from government measures on the impact of El Niño is expected to limit the upside risk to inflation outlook. Accordingly, the risk-adjusted inflation forecast for 2024 was raised slightly to 4.0% (15 Feb 2024: 3.9%) but stays unchanged for 2025 at 3.5%. The latest baseline and riskadjusted inflation forecasts implies upside risk to monthly inflation this year.
As such, BSP sees headline inflation to continue on upward trend until the middle of the year due to the impact of adverse weather conditions on domestic agricultural output as well as base effects from the large drop in inflation in 1H 2023 (Jan 2023: +8.7% YoY; Jun 2023: +4.7% YoY). On growth, BSP sees the latest demand indicators to suggest domestic
growth prospects remain largely intact over the medium term, even as overall activity continues to gradually respond to tighter financial conditions; but remained mindful of the full – and lagged – impact of the BSP’s prior course of monetary policy tightening. To recap, Philippines’ real GDP growth in 4Q 2023 expanded slower at +5.6% YoY (3Q 2023: +6.0%
YoY; 2023: +5.6%).
The house expects policy rate easing to 5.75% by end-2024. The Monetary Board (MB) highlights the importance of government measures in addressing supply-side pressures on prices to keep inflation within the target range. Overall, MB continues to see the need to keep monetary policy settings sufficiently tight to allow inflation expectations to settle more firmly within the target range and remains ready to adjust policy settings as necessary. Maintained view that BSP will start cutting the policy rate in 3Q 2024 from current 6.50% to 5.75% by end-2024.
