Inflation slows further in January, below forecasts


Posted at Feb 05 2019 09:09 AM | Updated as of Feb 06 2019 03:43 PM

Inflation slows further in January, below forecasts 1
Consumers buy vegetables at a Manila market. Analysts expect inflation to have slowed down further in January. Mark Demayo, ABS-CBN News/File

MANILA -- Inflation decelerated further in January, official data released Tuesday showed, giving the Bangko Sentral ng Pilipinas scope to keep interest rates steady during its first policy meeting of the year.

Inflation was at 4.4 percent in January compared to 5.1 percent in December. The median forecast of economists in separate polls by Bloomberg and Reuters was for a 4.5-percent increase in the consumer price index.

Lower prices of food, transport, tobacco and alcoholic and non alcoholic beverages contributed to the slowdown in inflation in January, said National Statistician Lisa Grace Bersales.

"This puts less pressure on the Central Bank to act," said Julian Tarrobago, head of equities at ATR Asset Management.

"We're looking at no hike. We think rates would be unchanged by the monetary board on Thursday," he told ANC's Market Edge.

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The economy grew 6.1 percent in the last 3 months of last year, slightly faster than the previous quarter's 6 percent, but less than what the market had expected. 

While the government is optimistic activity will gather momentum in coming quarters on strong domestic consumption, it has said the US-China trade dispute and tighter financing conditions in emerging markets could be a dampener.

"We believe the focus at the upcoming BSP meeting will not be on further monetary tightening but rather on measures to support growth", said Noelan Arbis, economist at HSBC in Hong Kong.

The central bank paused its tightening cycle in December to allow its 5 straight previous rate hikes, totaling 175 basis points, to work their way into the economy.

With inflation likely to become less of a worry this year, some economists believe the central bank could ease monetary policy this year to support growth. 

This, they said, could come in the form of a reduction in the amount of cash that banks must hold as reserves and a cut in interest rates. 

"BSP could start cutting its key policy rates and banks' reserve requirement ratio as soon as inflation rate goes back to the 2-4 percent target rate, which may happen as early as second quarter of 2019," said Michael Ricafort, an economist at RCBC bank in Manila.

The central bank slashed the reserve requirement ratio by a total 2 percentage points to 18 percent last year in line with its medium-term goal to bring it to single digit levels.

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