Foreign banks have expressed the belief that inflation experienced a significant decline in June, falling below six percent.
This marks the fourth consecutive month of cooling, reaching a 12-month low of 6.1 percent in May compared to April’s 6.6 percent, largely due to favorable base effects.
Singapore’s DBS Bank Ltd. suggests that inflation likely continued to slow in June, reaching 5.4 percent.
This can be attributed to a general moderation across core, food, and energy-related items.
DBS stated that the incoming data would likely reassure the Bangko Sentral ng Pilipinas (BSP) in maintaining a steady interest rate approach.
This will ensure that headline inflation returns to its target range of two to four percent by the end of 2023.
Moody’s Analytics also anticipates a slowdown in inflation to 5.4 percent in the previous month.
The last time inflation dipped below six percent was in May 2022, when it reached 5.4 percent.
ANZ Research predicts that inflation will decelerate to 5.3 percent in June, following May’s 6.1 percent, primarily due to a further easing food prices.
Additionally, core inflation is expected to soften from 7.7 percent to 7.3 percent.
ANZ highlighted the Philippines’ remarkable progress in recent months, as prices fell more than expected after an earlier surge attributed to high food prices.
Since peaking at a 14-year high of 8.7 percent in January, inflation has steadily decreased over the past four months, averaging 7.5 percent during the first five months.
However, it remains significantly above the central bank’s two to four percent target range.
ANZ expects Philippine inflation to return to the official target range by the end of this year’s third quarter.
The improved inflation outlook serves as a reprieve for the BSP, allowing it to maintain its policy rate without changes for the second consecutive time in June.
ANZ stated that while concerns about inflation have largely dissipated, concerns about economic growth have intensified, particularly due to weak exports and the advancement of monetary policy transmission.
The real policy rate turned positive in May and is expected to continue rising.
ANZ sees a case for a policy shift or rate cuts at least the second quarter of next year due to the hawkish stance of the US Federal Reserve, which has signaled further rate hikes, albeit smaller in scale.
According to ANZ, the hawkish US Fed and the need for corrections in external imbalances limit policy flexibility at this stage.
BSP Governor Eli Remolona pledged to continue the progress made by his predecessors, highlighting the decline in inflation.
He stated that if their models are correct, the target range should be achieved by the end of this year, during the BSP’s 30th anniversary and turnover ceremony.
The BSP projects that June inflation likely settled between 5.3 and 6.1 percent.
According to the central bank, the primary sources of upward price pressures in June were higher prices for key food items such as rice, vegetables, and fish, domestic oil price increases, electricity rate hikes, and the peso’s depreciation.
On the other hand, lower meat and fruit prices, along with a rollback in LPG prices, could have contributed to downward price pressures last month.
The BSP will continue to monitor developments that affect the inflation and growth outlook, aligning with its data-dependent approach to monetary policy formulation.
Due to the downtrend in inflation and robust gross domestic product growth in the first quarter, the BSP has maintained a neutral stance, keeping key policy rates unchanged in the May and June rate-setting meetings.
After raising interest rates by 425 basis points since May of the previous year as part of a tightening cycle to combat inflation and stabilize the peso, the BSP has emerged as the most proactive central bank in the region.
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