By Derco Rosal
Amid consensus expectations that inflation slid in September, the majority of economists polled by Manila Bulletin are looking forward to the Bangko Sentral ng Pilipinas' (BSP) decision to further reduce interest rates during its upcoming monetary policy meeting on Oct 16.
Following the seven-month low August inflation rate, private-sector economists who are monitoring the Philippines anticipate inflation to have slowed even more last month, influenced by slowing food and oil prices, peso appreciation, and base effects.
All 13 forecasts for last month's headline inflation fall within the lower half of the government's two- to four-percent target range. The Philippine Statistics Authority (PSA) will release September's consumer price index (CPI) report on Friday, Oct. 4.
All these economists projected a figure that will make the September rate the slowest at least since January of this year. The lowest forecast of 1.9 percent came from Goldman Sachs Economics Research, citing lower fuel and vegetable prices.
The highest inflation forecast of three percent — which is still lower than August's rate of 3.3 percent — came from Ser Percival K. Peña-Reyes, director of the Ateneo Center for Economic Research and Development.
Miguel Chanco, chief emerging Asia economist at think tank Pantheon Macroeconomics, pointed to the likelihood of lower month-on-month inflation, noting that "the continued steep fall in headline inflation should stem primarily from still-favorable food-price base effects (from last year's rice price surge), as well as a deepening in transport deflation, reflecting the recent decline in fuel prices."
A room for more rate cuts
With these inflation expectations, Chanco and some economists lean towards the possibility that this would give the central bank room for further rate cuts.
"A cooling inflation print for September will convince the BSP that inflation has returned to target for good after July's spike. Coupled with the recent 50 basis points (bps) cut by the US Federal Reserve, this increases the chances for an October rate cut in the Philippines," said Sarah Tan, economist at Moody's Analytics.
"Indeed, the start of the monetary policy easing cycle in the US gives the BSP room to further loosen its monetary policy. The BSP could move with two 25 bps cut in the fourth quarter across their two meetings in October and December," Tan added.
However, Security Bank Corp. chief economist Robert Dan J. Roces warned about potential risks from oil prices and typhoons, suggesting that the central bank may take a cautious approach to interest rate reductions.
Seven economists gave similar 25 bps cut predictions for the next BSP policy meeting: Chanco, Peña-Reyes, Tan, Goldman Sachs Economics Research, Sun Life Investment Management and Trust Corp.'s Patrick M. Ella, Regina Capital Development Corp.'s Luis Gerardo Limlingan, and Metrobank Research.
Meanwhile, Rizal Commercial Banking Corp. (RCBC) chief economist Michael L. Ricafort expects a bigger 50 bps cut, predicting that inflation could remain around three percent for the rest of 2024, allowing the BSP to justify further rate cuts that align with potential US Federal Reserve reductions.
Similarly, DBS Bank senior economist Radhika Rao noted the BSP "may implement two more reductions by the end of 2024 as inflation decreases and is poised to settle deeper into the policy target range."
On the other hand, Jonathan Ravelas, senior adviser at Reyes Tacandong & Co. and managing director of e-Management for Business and Marketing Services, believes that the central bank will keep its interest rates unchanged this month.
Ella and Limlingan also expect lower inflation expectations and easing monetary policy to support economic growth by boosting consumer spending and making borrowing cheaper.
Chanco, however, asserted that it may take some time for any cuts in interest rates to actually improve economic growth because there is usually a delay between lowering rates and seeing positive effects in the economy.