Inflation cools further in April, sets stage for interest rate cut


Posted at May 07 2019 09:09 AM | Updated as of May 07 2019 03:57 PM

MANILA -- (UPDATE) Inflation cooled further in April, official data released Tuesday showed, setting the stage for the Bangko Sentral ng Pilipinas to start cutting interest rates as early as this week.

The consumer price index rose 3 percent in April, slowing for the sixth straight month and staying within the BSP's 2 to 4 percent goal for the third straight month. It also matched the forecast of analysts in a Reuters poll.

Bangko Sentral Gov. Benjamin Diokno said oil prices and the El Niño drought could stoke inflation in the near term but the weak global economy would be a downside risk.

Diokno said the BSP would "consider all relevant data" during its meeting on Thursday "to ensure that the monetary policy stance remains consistent with the BSP's primary mandate of price stability conducive to a balanced and sustainable growth of the economy."

"The stars are aligned for the central bank to finally normalize their interest rates and monetary policy in general after hiking aggressively late last year," Trading Edge chief investment strategist Ron Acoba told ANC's Market Edge.

The Monetary Board can cut the overnight borrowing rate by 25 basis points and the reserve requirement ratio or RRR for bank by 1 percentage point, he said.

The BSP raised the benchmark rate by 175 basis points in 2018, bringing it to 4.75 percent, to tame inflation that hovered near 10-year highs at that time. The RRR is currently at 18 percent.

"There's a case to be made for rate cuts from the BSP as early as its Thursday meeting," said Standard Chartered economist Chidu Narayanan told Market Edge.

"We don't see inflation going back to levels we saw from last year," Narayanan said. Crude prices could stoke inflation in the second quarter but it could slow to below 2 percent by July to September, he said.

Watch more News on iWantTFC

Slower increments in price increases for food and alcoholic beverages led to the 3-percent inflation print in April, the Philippine Statistics Authority said.

"The recent inflation reading validates our efforts towards stabilizing inflation so that the country’s buoyant economic growth, along with key reforms, remains unimpeded," said Socioeconomic Planning Secretary Ernesto Pernia.

Bangko Sentral Gov. Benjamin Diokno told ANC on May 3 that reductions in the benchmark interest rate and the RRR were "inevitable." He said a 1-point cut per month for 4 consecutive months on the reserve requirement was "on the table."

With inflation cooling, Diokno said the 175-basis point adjustment was no longer "normal." He said on May 3 that April inflation would be "right there at 3 percent."

Eight of 12 economists in a Reuters poll predicted the central bank would deliver a quarter-point reduction in its benchmark interest rate on Thursday. Four of the 8 further said the policy rate cut would also be accompanied by a 100 basis point reduction in the RRR.

Three expected the rate on the central bank's overnight repurchase facility and the RRR to be kept unchanged at 4.75 percent and 18 percent, respectively. One said the main rate would be kept steady but the RRR would be cut by 100 basis points. 

The Philippines remains one of Asia's fastest-growing economies, but policymakers had to grapple with soaring inflation last year that pushed the central bank to raise its benchmark interest rate by a total 175 basis points.

Inflation cools further in April, sets stage for interest rate cut 1
Inflation across commodity groups. ABS-CBN Data Analytics
Inflation cools further in April, sets stage for interest rate cut 2
Inflation across selected food items. ABS-CBN Data Analytics
Watch more News on iWantTFC

-- with a report from Reuters