THE Bangko Sentral ng Pilipinas (BSP) is likely to loosen its monetary policy as early as the second quarter of 2019 on account of easing price pressures, according to London-based Capital Economics.
In a report over the weekend, the British research consultancy firm said “a further sharp drop in inflation in the Philippines in December supports our view that the central bank will start to loosen monetary policy soon.”
“We currently have two 25 basis point cuts pencilled in for 2019, with the first cut likely to come in the second quarter,” it added.
The report was issued after the government announced that the country’s headline inflation slowed to a seven-month low of 5.1 percent in December, bringing the full-year average to 5.2 percent.
A breakdown of the data, Capital Economics said, shows that falling transport and food price inflation were again the driving the drop.
According to the Philippine Statistics Authority (PSA), last month’s inflation slowdown was mainly driven by the slower annual increments in the indices of food and non-alcoholic beverages at 6.7 percent and transport at 4.0 percent.
“We expect both these factors to push inflation down further over the coming months, and for inflation to drop back to within the BSP’s 2-4 percent target by the middle of the year,” Capital Economics said.
“But with price pressures set to ease further and the economy slowing, we think the central bank will start loosening policy before too long,” it added.
The central bank’s policy-making Monetary Board raised key interest rates five consecutive times in 2018 for a total of 175 basis points, after inflation breached the 2.0-to-4.0-percent target beginning March.
After these hikes, the government reported that the country’s gross domestic product growth was running below target, averaging 6.3 percent as of end-September after first-to-third quarter outturns of 6.6 percent, 6.2 percent and 6.1 percent, respectively.