The Bangko Sentral ng Pilipinas (BSP) expects the country’s inflation for the month of September will ease further to a low of two percent or a high of 2.8 percent but still better than August’s actual 3.3 percent rate.

The BSP said the stronger local currency vis-à-vis the US dollar and the downward price pressures for September has tempered the consumer price index (CPI).

It added that negative base effects, the reduced prices of food commodities such as rice, meat, and vegetables as well as lower domestic oil prices have contributed to curbing the September CPI and could easily break the three percent level.

With the appreciation of the peso and the downward price pressures in September, the BSP noted that these could be enough to “offset the higher prices of fish and fruits and electricity rates.”

The BSP reiterated that the Monetary Board, its policy-making arm, will “continue to take a measured approach in ensuring price stability conducive to balanced and sustainable growth of the economy and employment.”

The next BSP monetary policy rate meeting is on Oct. 17. BSP Governor Eli M. Remolona Jr. has signaled to the market that there could be two 25 basis points (bps) rate cut coming, one of them this month. The last policy rate meeting is on Dec. 15.

After almost four years and 450 bps combined rate hikes, the BSP reduced the target reverse repurchase (RRP) rate by 25 bps last Aug. 15, from 6.5 percent to 6.25 percent.

With adjustments to the target RRP rate, the BSP also cut the rates on the overnight deposit and lending facilities to 5.75 percent and 6.75 percent, respectively.

Meanwhile, the BSP reiterated that inflation is projected to continue with its downward path and return to within the government’s two-four percent target range despite the uptick in July of 4.4 percent.

At the moment, the BSP has a risk-adjusted inflation forecasts for 2024 of 3.3 percent and 2.9 percent for 2025. For 2026, the risk-adjusted projection is 3.3 percent.

Remolona has said that the downside risks to inflation are linked mainly to lower import tariffs on rice, while upside risks could come from higher electricity rates and external factors.

Based on the BSP’s survey of external forecasters (BSEF) for August, private sector economists expect inflation to be lower at 3.5 percent this year, or lower than previous forecast of 3.7 percent as risks to the inflation outlook have remained broadly balanced.

Analysts are still confident that inflation expectations are well-anchored, resulting to a lower mean inflation forecasts for 2024, 2025 and 2026.

The BSEF preliminary results showed that the surveyed 23 economists have a mean inflation forecast for 2024 of 3.5 percent versus the 3.7 percent in the July survey.

As to the forecast for 2025, this was was also lowered to 3.1 percent from the previous survey of 3.5 percent. For 2026, the inflation projection was likewise adjusted to 3.2 percent versus the previous estimate of 3.4 percent.

The survey noted the downside risks to the inflation outlook such as: lower rice prices following the implementation of Executive Order 62; a stronger peso against the US dollar; and favorable base effects.

The main upside risks, on the other hand, are expected to come from second-round effects due to higher electricity costs as an impact of a potential increase in oil prices amid geopolitical conflicts.

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