With consensus expectations that inflation modestly accelerated in November, most economists polled by Manila Bulletin anticipate the Bangko Sentral ng Pilipinas (BSP) will proceed with cutting borrowing costs during its Dec. 19 policy meeting.
Private-sector economists who are monitoring the Philippines expect inflation to have continued increasing gradually from the four-year low rate posted in September, driven by typhoon-related crop damage, higher food prices, increased fuel and electricity costs, and supply disruptions.
Out of the 13 forecasts, the majority, or nine, revised their projections to a higher inflation rate for November, expecting an average of 2.5 percent. This marks a slight increase from the 2.3 percent recorded in October, reflecting an increase in inflation over the past month.
Despite this expected uptick, the consensus rate remains within the lower half of the government's two- to four-percent target range. The Philippine Statistics Authority (PSA) will release November’s consumer price index (CPI) report on Thursday, Dec 5.
Meanwhile, Germany-based Deutsche Bank Research and Sun Life Investment Management and Trust Corp. economist Patrick M. Ella forecasts a slower inflation rate at 2.1 percent, while Regina Capital Development Corp. economist Luis Gerardo Limlingan expects inflation to have moved at a constant pace.
China Bank Research gave the fastest inflation estimate at 2.8 percent driven by typhoon-induced vegetable price spikes and higher costs for fuel, electricity, and key food items, despite lower rice and fruit prices.
“We observed a spike in vegetable prices compared to the previous month, likely reflecting the impact of the recent series of typhoons that hit the country. Upward price pressures also stemmed from higher prices of other key food items such as fish, meat, and eggs, as well as increases in LPG and fuel prices and electricity rates,” it said.
Although weather-related risks to food prices persist, Chinabank expects inflation to stay within the target band. As such, the bank anticipates a BSP interest rate cut in December, citing further a stable interest rate differential, whether the US Federal Reserve holds or cuts rates this month.
25 basis points
Like Chinabank Research, Deustche Bank Research economist Junjie Huang and Union Bank of Philippines chief economist Ruben Carlo O. Asuncion expect the central bank to further cut borrowing costs in its last meeting for 2024.
Huang and Asuncion see a 25-basis-point (bps) rate cut in December, citing weak domestic activity and inflation likely staying in the low two percent range in the coming months.
“With 2024 average inflation at near mid-target, the likelihood of another 25 bps cut in the Monetary Board’s (MB) December meeting is high because of price pressures being still manageable,” Asuncion said.
However, Asuncion also noted the equal chance that the MB may take a hawkish pause, given the upward revision of the inflation outlook for the next two years, driven by potential increases in electricity prices and minimum wages.
Five economists or think tanks gave similar 25 bps rate cut predictions for the next BSP policy meeting: Patrick M. Ella, Miguel Chanco (chief emerging Asia economist at Pantheon Macroeconomics), Michael Ricafort (chief economist at Rizal Commercial Banking Corporation), Jonathan Ravelas (senior adviser at Reyes Tacandong & Co. and managing director of e-Management for Business and Marketing Services), Capital Economics, and United Overseas Bank (UOB).
Meanwhile, Regina Capital's Limlingan, with an unchanged 2.3 percent inflation forecast asserted that if the inflation comes in lower than expected and the peso strengthens, there could be a rate cut, “otherwise BSP might maintain rates.”
Victor A. Abola, economist at UA&P School of Economics suggests that current economic conditions are still favorable enough for the central bank to consider reducing further by 25 bps.
Trump 2.0 impact
External pressures, including potential inflationary policies under the comeback of the Donald Trump administration, may limit the BSP’s future rate cuts.
“The main impact from the upcoming Trump administration is that his policies likely will prove somewhat inflationary thereby constraining the Fed’s ability to ease more aggressively,” Chanco said.
“Accordingly, this will in turn limit the space for central banks like the BSP to ease next year,” he added.
Huang also noted that the BSP’s easing cycle “may face constraints amid ongoing external pressures, especially on Asia FX [foreign exchange].”
In particular, US interest rates are expected to rise due to Trump’s potential policies, which could lead the BSP to set its policy rate at a lower level of 5.25 percent in this cycle, 25 bps higher than previously anticipated.
“The BSP may also be compelled to pause and prioritize currency defense in its December MB meeting, and possibly into early-2025 if these external pressures are sustained,” Huang further said.
In line with this, Moody’s Analytics economist Sarah Tan said the BSP will be more cautious in its monetary policy decisions as it closely monitors the peso’s strength.
Tan explained that higher inflation under Trump could slow the US Federal Reserve rate cuts, widening the gap between US and Philippine long-term yields and potentially weakening the peso.
While others point to the constraints that a Trump 2.0 administration would bring, Ella asserted that the central bank’s easing cycle will remain unaffected by this.
“On Trump, no I don’t think the incoming Republican administration will interrupt the BSP easing cycle,” he said.