The Bangko Sentral ng Pilipinas (BSP) reducing key policy rates in the October 17 meeting of its Monetary Board (MB) is seen by analysts as almost a done deal, as Philippine inflation is clearly on a downtrend in the past months.

Inflation settled at a year-low 1.9% in September from the 3.3% in August, which in turn was lower than the 4.4% of July, the highest for this year.
In a research note, Maybank Investment Banking Group (IBG) said it sees the BSP reducing policy rates in the next two meetings of its MB by a total of 50 basis points (bps).

“Currently, we expect another 25 bps rate cut by BSP in 4Q (fourth quarter) 2024 i.e. from 6.25% to 6.00% by end-2024. The two remaining BSP’s monetary policy meetings this year are on 17 October and 19 December 2024,” Maybank IBG said.

The BSP announced a 25 bps policy rate reduction after its August 15 meeting, which was a big factor for the ascent of the Philippine Stock Exchange index (PSEi) to above 7,400 points.

For his part, HSBC Global Research economist Aris Dacanay said that risks to inflation were dissipating and that the BSP now has more room to implement new rate cuts.

“With inflation risks largely dissipating, largely due to rice, the room to cut policy rates in both the October and December rate-setting meetings is vastly increasing.”

“The BSP seems to be gaining confidence as well, as reflected by Governor Remolona’s pronouncement … that cutting twice this year is possible, in principle,” he added.

For Bank of the Philippine Islands senior economist Emilio Neri, inflation can remain under control potentially staying below 3% in the absence of supply shocks.”

“This favorable condition could extend into 2025,” he added. However, Neri said that the potential impact of the La Niña weather disturbance and rising cases of African swine fever (ASF) were upside risks to inflation.

“We now expect full year inflation to settle at 3.2% in 2024 and 2.8% in 2025,” Neri said.

He added that given those factors, the BSP is expected to do more monetary easing, specifically reduce key policy rates.

“While we expect more monetary easing, it is unlikely that the BSP will adopt an aggressive approach,” Neri said.

IMPACT OF EO62 AND AO20

Maybank IBG said that Executive Order (EO) 62 and Administrative Order (AO) 20 had a significant impact on food and non-alcoholic beverage (FNAB) inflation, which in turn heavily influenced overall inflation rate in September. EO 62 reduced the tariff on imported rice to 15% from 35%, while AO 20 removes the non-tariff barriers on importation of agricultural products.

The investment bank said the EO 62 has resulted in higher domestic rice stocks, helping control and stabilize the prices of the commodity.

“Total domestic rice stock inventory for Jan-Aug 2024 is also already higher by +9.3% YoY (year-on-year) than in Jan-Aug 2023 while global rice price is gradually easing. Expect further easing in global rice prices as India removed the export ban on non-basmati white rice on 28 Sep 2024, after cutting export duty on parboiled rice to 10% from 20%,” Maybank IBG said.

Rice inflation has been a major drag in inflation rate since late year up to August, settling at double digits and many times above 20%. For September, rice inflation went down to a low 5.7% from the 14.7% of August.

(Photo from PNA)