Slower June inflation a ‘green light ’for BSP to cut rates —Capital Economics

The slower inflation recorded in June would compel Philippine monetary authorities to slash policy rates in the coming months, London-based think tank Capital Economics said Friday.

“Today’s data are likely to be a green light for the BSP (Bangko Sentral ng Pilipinas) to make another cut to its policy rate,” Capital Economics said.

Inflation clocked in at 2.7% last month, the slowest since September 2017 when it hit 3.0%.

It also fell within the BSP’s forecast of between 2.2% and 3.0%, and compares with 5.2% recorded in June 2018.

“A cut is likely at the Bank’s next meeting in August,” Capital Economics said in a statement.

The Monetary Board is scheduled to have its fifth meeting for 2019 on August 8, Thursday.

“The central bank left its policy settings unchanged at its meeting last month in what it described as a ‘prudent hold’,” it said.

On June 20, the BSP’s policy-setting Monetary Board decided to keep policy rates at their current levels—overnight borrowing at 4.5%, overnight lending at 5.0%, and the overnight deposit rate at 4.0%.

“A prudent pause allows the BSP to observe and assess the impact of prior monetary adjustments, including the phased reduction in the reserve requirements to be completed by the end of July,” BSP Governor Benjamin Diokno said.

As inflation slows further, Capital Economics expects more easing until the policy rate reaches to 3.75% by early 2020 from the current 4.50%.

“The renewed drop in inflation in June is likely to continue as the headline rate is dragged down by falling food and fuel price inflation, providing a green light for the central bank to cut rates in August,” it said.  —VDS, GMA News