Easing cycle: People lounge around against the backdrop of a sunset at Manila Bay. The inflation outlook and well-anchored expectations continue to support the BSP’ shift towards less restrictive monetary policy. — AFP
MANILA: The Philippine central bank pledges to maintain a “measured approach to monetary policy easing” as upside risks to inflation remain even after meeting the annual target for the first time in three years in 2024.
“The within-target inflation outlook and well-anchored inflation expectations continue to support the Bangko Sentral ng Pilipinas’ (BSP) shift towards less restrictive monetary policy,” the central bank said in a statement yesterday after the statistics agency reported that price gains averaged 3.2% in 2024.
That was well within the government’s 2% to 4% goal.
“Nonetheless, the monetary authority will continue to closely monitor the emerging upside risks to inflation, notably geopolitical factors,” the BSP said.
Consumer prices rose 2.9% from a year ago in December, the fastest in four months and above all but one estimate among 21 economists in a Bloomberg survey.
The core price gauge that strips volatile food and energy prices also quickened to 2.8% in December, the Philippine Statistics Authority said yesterday.
Potential transport and electricity rate increases, geopolitical tensions and the impact of adverse weather pose upside risks, prompting caution in one of the first central banks in the region to cut borrowing costs.
The BSP last year lowered the key rate by a total 75 basis points, delivering its first cut ahead of the US Federal Reserve.
It capped 2024 with a third quarter-point rate cut in December, as inflation remained on target and economic growth slowed, with governor Eli Remolona signalling last month that monetary easing can continue at its first policy meeting this year on Feb 20.
In a separate statement yesterday, Remolona struck a cautious tone, saying authorities won’t be complacent even after meeting the inflation target last year.
“It’s always good to be prepared,” President Ferdinand Marcos Jr was quoted in the BSP statement as saying after the central bank warned that prices of certain commodities may rise. Price increases averaged 6% in 2023 and 5.8% in 2022, breaching the target band, driven mainly by supply disruptions.
That prompted the BSP to implement its most aggressive monetary tightening in two decades that took borrowing costs to a 17-year high. The central bank “remains ready to respond when necessary, guided by its data-dependent approach,” it said yesterday’s statement.
Incoming US President Donald Trump’s threat to broadly impose tariffs also pose potential price risks.
Tamara Mast Henderson, an Asean economist, said a sharp pickup in headline and core consumer price gauges in December extended an upward trend in Philippine inflation.
“This gives BSP less room to keep up the pace of its easing cycle,” she said.
“If the peso remains under significant downward pressure and there is another strong inflation print for January, BSP is likely to leave rates unchanged at its next meeting on Feb 20,” BSP said.
“Complacency is not an option, as upside risks to inflation remain.”
Cooling rice prices, which was a key driver of inflation previously may offer sustained relief as authorities expect them to ease further.
The price of the grain increased 0.8% year-on-year in December from above 20% months ago. — Bloomberg
