PHILIPPINE INFLATION was likely to ease to 2.5% this month, giving the central bank room to cut interest rates further than expected, Finance Secretary Ralph G. Recto said on Tuesday.
But the government remains cautious due to the escalating scamsFLegislation in the Middle East could lead to a spike in global oil prices, he said.
“Inflation is on a downward trend,” said Mr Recto, just back from a cabinet meeting on food and non-food management inFHe said this during a Palace briefing. “We expect inflation to fall to 2.5% in September.”
September inFThe data will be released on October 4.
Mr Recto said the Bangko Sentral ng Pilipinas (BSP) could cut rates further and match the size of the US Federal Reserve’s big rate cut.
“The Fed cut by 50 basis points (bps) or half a percent, I think we can also do half a percent,” he said in mixed English and Filipino.
BSP Governor Eli M. Remolona, Jr. previously said they could cut another 25 basis points in the fourth quarter.
RelaxFThis situation had prompted the BSP to begin its easing cycle at the August 15 meeting. The Monetary Board cut rates by 25 basis points, bringing the benchmark rate to 6.25%, down from a 17-year high of 6.5%. This was the FThe BSP reduced rates for the first time since November 2020.
Head inFGrowth slowed year on year to a seven-month low of 3.3% in August, down from 4.4% in July, due to a moderate increase in food prices and a drop in transport costs.
Year to date, inFGrowth rose 3.6%, slower than 6.6% a year ago.
Mr. Recto said insideFThis year, inflation could average 3.4% and decline further to 2.9-3.1% in 2025.
The BSP adjusted its baseline last monthFForecasts increase to 3.4% for 2024 (from 3.3% previously), 3.1% for 2025 (from 3.2% previously) and 3.2% for 2026 (from 3.3% previously).
“The beauty of reducingFThe idea is to increase your gross domestic product (GDP) growth and create more jobs and reduce your borrowing costs,” Mr Recto said.
He said the possible rate cut will increase the Philippines’ chances of achieving its 2025 growth target of 6.5-7.5%.
However, Mr Recto said tensions in the Middle East pose a threat to the governmentFexpectations, noting that global oil prices could rise if a war breaks out.
“Our biggest challenge is external headwinds. One of them is the war in the Middle East, and we don’t want it to get out of control and possibly lead to oil price increases,” Mr Recto said, referring to the escalation of the scams.Fconflict between Israel and the Lebanese Hezbollah.
“There is also a push for electricity prices to rise,” he added.
Meanwhile, GlobalSource Partners Philippines country analyst Diwa C. Guinigundo said geopolitical conFcrimes “could lead to a possible escalation of oil prices, energy and food prices and ultimately to an escalation of oil prices, energy and food pricesFlation.”
“InsideFThere has been some relaxation within the targetFGiven the forecasts and the risk balance tilting to the downside, there is certainly some room for further adjustment by the BSP,” he said. Business world.
Asked to comment on Mr Recto’s statements, the former BSP deputy governor said: “I would expect our budget authorities to avoid talking about monetary policy, especially on issues likeFforecasts and the likely direction of monetary policy, and also provides a kind of forward guidance to the market.
Robert Dan J. Roces, chief economist at Security Bank Corp., said external threats, especially conFcrimes the Middle East and the global oil pricees, are still “signiFbig concerns.”
“While these projections point to effective anti-inflation measures, the real test lies in translating lower inflation into tangible benefits for ordinary citizens through job creation, improved social services and sustainable economic practices,” Mr Roces said in a Viber -message.
Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila University, said the government seems to have forgotten that the recentFGrowth is fueled by food prices, and not by external factors.
“This has more to do with the internal management of the economy. Unless food, especially rice, keeps prices in check, the inFRisks remain,” he said in a Facebook Messenger chat.
With the Tuesday letterFAgriculture Minister Francisco Tiu Laurel said pressure on pork prices is likely to ease as the government rolls out vaccines against African swine fever, forcing producers to cull pigs.
The government has tested the vaccines locally with 10,000 doses, he noted, adding that the next 450,000 doses will be allocated next month.
“We hope to complete the procurement of 600,000 doses by the end of December this year,” he said.
EXCESSIVE LIQUIDITY
Meanwhile, Mr Guinigundo said the government should closely monitor the potential liquidity surplus following the 250 basis points increase in banks’ reserve requirements (RRR).
“(This) could add nearly P500 billion in domestic liquidity. With a small negative output gap, we would not want to push that period out and risk a possible revival of inflation due to additional liquidity injections,” he said.
“What supports this BSP monetary policy is the favorable inflation expectations even after the recent cut in both the policy rate and the RRR,” he added.
During the Palace briefing, Monetary Council member Mr Recto said the BSP had considered the potential impact of the reduction in capital reserves.Pact on inflation.
“We thought about that when we decided the policy at the last BSP meeting. This will be good for the economy. It will improve the capital markets,” he said. “We are injecting approximately 380 billion euros into the system. It will be good for the banks. And then it will have a delay eFperfect.”
The BSP will reduce the RRR for large banks and non-bank financial institutions with quasi-banking functions by 250 basis points to 7% from 9.5% previously, effective October 25.
It will also reduce the ratio for digital banks by 200 basis points to 4%, for thrift banks by 100 basis points to 1%, and for rural and cooperative banks by 100 basis points to 0%. — Kyle Aristophere T. Atienza