June rate cut by BSP still possible, says Pantheon

The Bangko Sentral ng Pilipinas (BSP) might still cut interest rates as early as June amid weaker-than-expected economic growth and as inflation comes within target, Pantheon Macroeconomics said.

“Our call for a June cut is grounded on the assumption that first-quarter gross domestic product will fall short of expectations, enough to override any potential BSP fears over a likely — albeit temporary — breach of its consumer price index (CPI) target range in May,” it said in a report.

The Philippine economy grew by 5.7% last quarter from 5.5% a quarter earlier and 6.4% a year ago.

This fell short of the government’s 6-7% full-year target for 2024 and was below the 5.9% median forecast in a BusinessWorld poll of 20 economists last week.

Pantheon Macroeconomics said hopes for a June rate cut were “still alive.”

At its April meeting, the BSP stood pat for a fourth straight time and kept its benchmark rate at a 17-year high of 6.5%.

The Monetary Board’s next policy review is on May 16.

BSP Governor Eli M. Remolona, Jr. earlier said they would consider easing if inflation could firmly settle at around 3% for several months.

“The latest [inflation] result helps to bolster our admittedly fraying below-consensus conviction that the Monetary Board will cut rates by a total of 100 basis points (bps) this year, with the first reduction still possible in June,” Pantheon said.

Inflation quickened for a third straight month to 3.8% in April from 3.7% in March.  It has stayed within the BSP’s 2-4% target for the fifth straight month.

Inflation averaged 3.4% in the first four months, still below the central bank’s 3.8% full-year forecast.

Pantheon noted that food prices could push inflation higher next month.

“Adverse food base effects, which pushed up food inflation further in April to a six-month high of 6%, will remain unhelpful for the next report, lifting the headline to 4.1% in our estimates.”

Food inflation quickened to 6.3% in April from 5.7% in March, driven by elevated vegetable and rice prices.

“Crucially, food-price base effects will turn decisively and increasingly helpful from June to September, pulling CPI inflation back comfortably within the BSP’s target range.”

The BSP earlier said inflation could temporarily accelerate above target in the next two quarters due to base effects and El Niño.

As of April 30, agricultural damage from El Niño had reached PHP 5.9 billion. Rice was the most affected crop, accounting for 53.21% of total farm damage, equivalent to PHP 3.14 billion. — By Luisa Maria Jacinta C. Jocson, Reporter