By means of Luisa Maria Jacinta C. Jocson, News reporter
A POSSIBLE INFRINGEMENT IN THE infThis month’s target will not derail the Bangko Sentral ng Pilipinas’ (BSP) planned rate cut by August, the highest pointffcially said.
BSP Governor Eli M. Remolona, jr. July saidFexceedance the 2-4% target is “expected” and unlikely to happenFThis could affect the likelihood of a rate cut in August.
“We expect a breach to occur in July. So if it doesn’t break through, it’s better than expected,” he told reporters on the sidelines of an event late Friday.
Mr Remolona said there is a 50-50 chance of July comingFThis could exceed the 2 to 4% target.
The central bank previously warned about thisFInflation could temporarily accelerate above target from May to July, but so far inflation is below 4% in May and June.
Headline inflation fell to 3.7% in June from 3.9% in May, marking the seventh month in a rowFThe situation remained within the target range of 2-4%.
“This is a cause for reassurance, because it seems to be going in the direction we expected. So it’s reassuring, but we still need a few more numbers. So it is not yet time to declare victory, as people say,” Mr Remolona added.
Meanwhile, National Economic and Development Authority Secretary Arsenio M. Balisacan said the downward trend of inFThe situation should continue in the coming months.
“I can’t say the worst is over, but I think extreme situations are not likelymore,” he told reporters on Friday evening.
“I think we expect (inFlation) will come down in the coming months as the El Niño has passed, hoping that the La Niña will not have serious consequences Ffloods and all that, and then I think prices will start to moderate. I believe this will allow us to achieve the 2-4% target,” he added.
Mr. Balisacan said the outlook already takes into account the recently approved wage increase in the National Capital Region (NCR).
“That is more or less already foreseen. The pay increases are not unreasonable. They fall within the inflation rate that our workers are experiencing,” he added.
The Regional Tripartite Wage and Productivity Council has approved a P35 minimum wage increase for workers in NCR, bringing the daily wage to P645 starting July 17.
Meanwhile, GlobalSource Partners Philippines country analyst Diwa C. Guinigundo said there is “a higher chance of an easing in 2024, especially if more downside risks emerge, including the reduction in rice import tariffs.FF.”
President Ferdinand R. Marcos, Jr. signed Executive Order No. last month. 62, which introduces a reduced rateFf scheme for agricultural products until 2028, including rice. Tariffs on rice imports were reduced to 15% from 35% previously.
Chief Economist Emilio S. Neri, Jr. said. of the Bank of the Philippine IslandsFInflation may have already reached its peak for the year and is likely to remain at the upper end of the 2-4% target range in July before falling in August.
“Now that El Niño has passed, rice production is expected to recover in the second half of the year, which could result in a price decline as supply improves,” Neri said in a report.
“The price drop could be even greaterFicant because of the rice tariFf cut that the government will implement this month,” he added.
Mr Neri said that when the Rice TariffThe ication law was implemented in 2019 and the “resulting decline in rice prices has erased its effectsFf to 1.2% from the headFlation.”
PESO ‘WORN’
In a note, Chinabank Research said the slower it goesFin June and “merry” inFThe outlook would support the BSP’s planned rate cut at its August meeting.
“There is a greater chance of a rate cut in August now that prices and the peso – which appears to be ‘behaving’ – are part of the decision point,” Security Bank Corp. chief economist Robert Dan J. Roces said. in a Viber message. .
“With inflation prospects now improving, the BSP is likely to start cutting rates in August,” Mr Neri added.
Mr Remolona noted that a 75 basis points (bps) cut for this year might be too “aggressive” and could cause a “hard landing”. He previously said the BSP could cut rates by 50 basis points for the full year.
However, Mr Roces warned that there are upside risksFthere are still some.
“We agree with the Philippine Statistics Authority’s observation that there is no clear signal that inflation has peaked, which we attribute to upside risks to food and fuel prices,” he said.
Mr. Guinigundo, a former deputy governor of the central bank, said the BSP should keep an eye on the potential increase in energy and transportation costs and wage adjustments.
“Still on the supply side, if the delay in imports were to last longer, it could prompt importers to postpone their imports of rice, which would reduce the supply of rice and cause the price to rise again. The weakening trend of the peso could also play a roleFlationary impact if it is sharp and long-lasting,” he said.
“If inflation were to peak in July, it would be just a single point in the broader space of monetary policy assessmentFforecasts and risk balance,” he added.
Chinabank Research also pointed out the peso’s potential impact on the BSP’s easing cycle.
“Nevertheless, the continued upward price pressure, together with the movement of the peso against the US dollar, could prompt the BSP to adopt a cautious stance regarding its future monetary policy decisions,” the report said.
The peso has been trading at the level of P58 per dollar since May.
On Friday, the peso closed at P58.53 against the dollar, up five centavos from Thursday’s finish of P58.58. This was the strongest performance in almost a month or since the closing rate of P58.52 per dollar on June 7.
“The transmission of the exchange rate to the euroFInflation appears manageable based on the central bank’s analysis and will only become a concern if the inflation target is again at risk,” Mr Neri said.
“However, it is still a limiting factor that is likely to prevent the BSP from aggressively cutting rates, especially given the country’s current account deficit,” he added.
Mr Neri mentioned other risks, such as the country’s external position.
“Aggressively cutting interest rates would make building foreign exchange reserves more difficult, which could lead to a further deterioration in the external position,” he added.
Mr Guinigundo said the BSP should take into account the second quarter gross domestic product data, which will be released on August 8.
“Although difficult to estimate, a good idea of the output gap could help the BSP decide whether to cut or maintain the policy rate and avoid premature or late adjustments, both of which could be costly for the economy,” says he. said.