The Bangko Sentral ng Pilipinas (BSP) [link] said that our September inflation likely fell into the 2.0% to 2.8% range thanks to “negative base effects”, “lower prices of food commodities including rice”, “lower domestic oil prices” and “the appreciation of the peso”. Inflation was 4.4% in July and 3.3% in August. The BSP cut the headline interest rate by 25 basis points following the August meeting of the BSP’s Monetary Board and reduced the RRR by 250 basis points in late September to stoke economic growth. While the BSP beat the US Federal Reserve in pivoting to a cycle of rate reductions with its 25 bp cut, the US Federal Reserve has since upped the ante by coming over the top of that cut with its own surprise 50 bp cut.
MB bottom-line: First, I don’t love “negative base effects” as the primary driver of the lower inflation forecast. Base effects are just what we say when the comparison of two periods–like the rate of inflation between September 2023 and September 2024–is heavily influenced by the disproportionate strength or weakness of the previous period. Second, while I’m hugely relieved to hear that India has lifted its export ban on white rice and that this should push rice prices downward, I also recognize that this relief was unforeseeable and out of the administration’s control. What if India didn’t lift that export ban? What permanent measures did the government put in place to help ease rice price inflation, and how much did those measures contribute to improving the situation? How did that result compare to the estimates? Last, am I the only one who is unsettled by the BSP Governor’s desire to cut the RRR to zero by the end of his term in 2029? That will inject nearly ?0.9 trillion into our financial system over the next five years. While 2029 is a long way away, he’s already talking about another massive cut (this time 200 basis points) to get our RRR down to 5% and would need to average over 150 bp of cuts per year to make it to zero to beat the deadline. Imagine sharing these insights if India didn’t lift its ban and there was no potential relief in sight for the majority of the country who are struggling to spend within their means to feed their families. Did the ban lift provide the cover to make these comments, or is this something that Mr. Remolona was hoping to roll out regardless? Given that the first jumbo RRR cut came before the ban lift, I’m betting it’s the latter.
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