Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said a pause in its tightening cycle is in sight if April inflation will be lower than March’s 7.6 percent.

“February and March month-on-month inflation rates were very low. If April month-on-month inflation is also low, that’s three consecutive months of low in month inflation, which could be supportive of a pause,” the BSP chief told Manila Bulletin.

The government will release the April inflation number on May 5. The next Monetary Board policy meeting is on May 18. The BSP will consider one more key data as basis whether or not it will raise rates or decide to pivot by pausing in its rate hikes, and that is the first quarter GDP report. Medalla has already said that based on its Nowcasting, they expect a 7.1 percent first quarter growth.

The country’s above-target inflation has decelerated in February and in March from what is probably the peak rate in January of 8.7 percent. In February, inflation slightly dipped to 8.6 percent and then eased sharply to 7.6 percent in March. This brings the first quarter inflation average to 8.3 percent which was way above the government’s two percent to four percent target.

On a month-on-month seasonally adjusted basis, inflation was “nil” in March from 0.3 percent in the previous month, based on BSP data. In February, inflation slowed down to 0.3 percent versus one percent in January.

Most market analysts think the BSP still has leeway for one more policy rate hike on May 18, given that core inflation has been rising while headline inflation is decelerating. The difference between headline inflation which is the one reported as the consumer price index (CPI) and core inflation is that the latter does not include volatile food and energy items that will “depict underlying demand-side price pressures.” In March, core inflation rose to eight percent from 7.8 percent in February.

While the market expects the BSP has one more 25 basis points (bps) to add to its current 6.25 percent overnight borrowing rate, a pause is coming but since inflation is still on the high side until end-2023, they are also prepared to see that perhaps in some months, the BSP could become hawkish again.

In an April 5 commentary, right after the March inflation data was announced, Bank of the Philippine Islands (BPI) analysts said that while an increasing core inflation may still convince the BSP to tighten monetary policy, they also see a pause if inflation loses steam for three consecutive months.

“The rise in core inflation may justify another rate hike in the next Monetary Board meeting. Additional monetary tightening will also hasten the process of bringing down inflation back to the target of the BSP,” said BPI analysts, adding that one more tightening “may help the central bank rebuild its external buffers after having lost so much in 2022.”

BPI also said inflation “may become favorable” after June until end-year which would lead to the BSP “reasonably consider(ing) re-assessing its tightening campaign.” It said “rate cuts may be justified if we are able to achieve a comfortable buffer, and if month-on-month changes in core and headline CPI fall to 0.2% or lower for at least three straight months.”

Meanwhile, British bank HSBC said they see BSP carrying out another 25 bps rate increase next month before pausing on June 22, BSP’s fourth policy rate meeting for the year.

“Given the extent of how much inflation eased, we can say with more confidence that headline inflation has finally peaked. Headline CPI on a m-o-m basis not only continued to ease but it did so quite significantly at 0.0% (in March). This suggests that headline inflation momentum is finally waning, which provides the BSP some relief that the end of its tightening cycle is finally in sight,” said HSBC on April 5.

Similar to what BPI noted, HSBC is also concerned about core inflation after it accelerated further to a fresh high of eight percent year-on-year. “But there is a glimmer of good news. Core CPI momentum showed signs of easing too. If this is sustained, we may see y-o-y core inflation fall soon, which should give the BSP confidence that the end of the tightening cycle is indeed within reach,” said the foreign bank.