Despite cooling inflation
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is likely to keep interest rates high even as inflation eased for the third straight month to a 22-month low of 3.9 percent in December.
“Looking ahead, the Monetary Board deems it necessary to keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident,” the central bank said.
Headline inflation last month finally eased within the BSP’s two to four percent target after staying above the range for 20 months or since April 2022 when it averaged 4.9 percent.
“The BSP will continue to monitor inflation expectations and second-round effects and take appropriate action as needed to bring inflation back to the target, in keeping with the BSP’s price stability mandate,” the central bank said.
According to the BSP, the latest inflation outturn is consistent with the central bank’s projections that inflation would likely moderate in the near term due to easing supply-side price pressures and negative base effects.
Nonetheless, it pointed out that the balance of risks to the inflation outlook continues to lean significantly to the upside.
“Key upside risks are associated with potential pressures from higher transport charges, increased electricity rates, higher oil prices, and higher food prices due to strong El Niño conditions,” the BSP said.
Bank of the Philippine Islands lead economist Jun Neri said headline inflation finally fell within the BSP target range after nearly two years.
“Real policy rates are positive just as inflation expectations are slowly getting re-anchored, second round effects moderating,” Neri said.
However, he noted that core inflation, which strips the volatile food and energy prices, remained high despite easing to 4.4 percent in December from 4.7 percent in November.
“Still, core inflation is at 4.4 percent, and risk of reacceleration of headline remains high from April 2024 onwards,” Neri said.