The Bangko Sentral ng Pilipinas (BSP) is forecasted to announce another 25-basis-point interest rate cut this year following the easing inflation, which fell to 3.3% in August from 4.4% in July as prices of food and non-alcoholic beverages stabilized, Moody's Analytics said in its weekly Asia Pacific Economic Preview.
This view reflects the earlier prediction by Gotianun-led East West Banking Corp. CEO Jerry Ngo, who said the BSP would again deliver a 25-basis-point interest rate cut this year as it would be hard-pressed not to follow suit with the US Federal Reserve. Ngo said policy easing was important, particularly in terms of the country's economic growth.
"It was the week for CPI (consumer price index) readings, with five economies posting August data," Moody's Analytics said. "Inflation ticked down a smidge in Taiwan and held steady in Indonesia at a
comfortable 2.1% year on year. In South Korea, the Philippines and Thailand, inflation tumbled."
It added, "For the Philippines and Thailand, cooling food inflation was a big influence. Drilling further down, smaller price increases for rice made a material difference."
According to Moody's Analytics, Philippine inflation fell to a seven-month low last month, with the market analysts looking for headline inflation to settle at 3.6%. In comparison, the BSP expected a reading of 3.2% to 4%.
Rice was a significant influence, with prices rising 14.7% year on year after
climbing more than 20% in July. That helped food inflation, a major item in the Philippine CPI basket, to ease to 4.2% from 6.7%. Core inflation, which excludes particular food and energy items, eased to 2.6% from 2.9% prior, the report said.
The Philippine Statistics Authority (PSA) said last week that the downtrend in inflation was pushed by the slower annual increment of food and non-alcoholic beverages, which was 3.9% from 6.4% in July.
"This was followed by vegetables, tubers, plantains, cooking bananas and pulses with a year-on-year decline of 4.3% during the month from a 6.1% annual increase in July," the PSA said in a briefing.
"In addition, faster annual declines were noted in the indices of fish and other seafood at 3.1% and sugar, confectionery and desserts at 3.8% during the month from their respective annual decreases of 0.8%and 3.4 percent in the previous month," it said.
National Statistician Dennis Mapa said the headline inflation last month was also lower than the 5.3% recorded in August 2023.
In particular, food inflation eased to 4.2% from 6.7% due to the decline in rice inflation, which decreased to 14.7% from 20.9% in July. It was the lowest rice inflation recorded since the 13.2% recorded in October 2023.
With commodities prices stabilizing, Moody's Analytics said it expects the BSP to issue another round of interest rate cuts.
"With headline inflation back on the downtrend, it supports the case for at least one more rate cut by the BSP in the fourth quarter," Moody's Analytics said.
The BSP cut key interest rates by 25 basis points to 6.25 percent last month, noting that the balance of risks to inflation was tilted toward the downside for this year and 2025.
"The Monetary Board decided to reduce the BSP's target reverse repurchase (RRP) rate by 25 basis points to 6.25 percent. The interest rates on the overnight deposit and lending facilities were accordingly adjusted to 5.75 percent and 6.75 percent, respectively," BSP Governor Eli Remolona Jr. said.
The last time the BSP cut key interest rates was in November 2020.
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