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THE recent slowdown in inflation nationwide could prompt monetary authorities to maintain key interest rates this week, according to Moody’s Analytics.
In its weekly highlights, Moody’s Analytics noted that inflation in the Philippines slowed to 2.8 percent in January 2024 and 3.7 percent in December 2023.
While this was largely due to high base effects since inflation peaked at 8.7 percent in January 2023, the December 2023 and January 2024 data placed inflation within the Bangko Sentral ng Pilipinas’s (BSP) expected range of 2.8 percent to 3.6 percent.
“With inflation cooling, BSP will hold policy rates steady when the Monetary Board meets on 14 February [which is February 15 in Manila],” Moody’s Analytics said.
With this, the think tank expects the Target Reverse Repurchase (RRP) Rate to remain at 6.5 percent. The last 25-basis-point rate hike was delivered in an off-cycle meeting of the Monetary Board in October 2023.
Based on data from the Philippine Statistics Authority (PSA), the inflation for December 2023 and January 2024 marked the lowest rate since March 2022 when inflation averaged 4 percent, the high end of the BSP’s inflation target.
Core inflation was at 3.8 percent in January 2024, the slowest core inflation rate since the 3.1 percent posted in June 2022.
“Core inflation, which excludes certain food and energy items, cooled to 3.8 percent from 4.4 percent,” Moody’s Analytics added.
ANZ’s take
Earlier, the Australia and New Zealand Banking Group Ltd. (ANZ Research) said the BSP may start toning down its hawkish monetary policy stance when it decides to maintain key policy rates this week.
ANZ Research expects the BSP to cut interest rates in the fourth quarter this year. It added that the Monetary Board, the highest policymaking body of the BSP, may cut interest rates by 50 basis points. With this, key interest rates may end the year at 6 percent.
The BSP earlier said its hawkish stance remains despite commodity prices slowing to 2.8 percent, the slowest in 39 months or four years.
Based on the PSA, inflation slowed to a rate that is the slowest since October 2020 when inflation averaged 2.3 percent. This is within the BSP’s forecast range of 2.8 to 3.6 percent for January.
However, the BSP said inflation could increase anew and post an average higher than the target range in the second quarter. This, the central bank explained, is due to the impact of El Niño weather conditions and positive base effects.
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