THE Bangko Sentral ng Pilipinas (BSP) may see faster inflation in September, but local economists believe this is not enough reason to exit its easing cycle when the Monetary Board meets next week.
On Wednesday, the BSP said it projects that September 2025 inflation will settle within the range of 1.5 to 2.3 percent. If the high end of the outlook is reached, this will be the second fastest inflation on record this year.
The Philippine Statistics Authority (PSA) will release the latest inflation print on October 7, ahead of the October 9 policy meeting at the BSP.
‘Upward price pressures for the month are likely to arise from higher prices of rice and fish. Elevated domestic fuel costs likewise contribute to upside price pressures for the month,’ the BSP said.
‘These pressures could be partially offset by the decline in vegetables and meat prices along with lower electricity rates,’ it added.
Ateneo de Manila University economist Luis F. Dumlao told BusinessMirror on Wednesday that the inflation projection was still within the 2 to 4 percent inflation target of the BSP.
This means, Dumlao said, the BSP has ‘space to be dovish.’ He said any reduction in policy rates will help support the country’s GDP growth.
Dumlao said the country’s GDP growth is growing slower than its natural growth of around 6.2 percent. Reducing policy rates can help boost the country’s economic performance this year.
‘The only way they will raise interest is if they see inflationary pressure over 4 percent the next 6 months,’ Dumlao told this newspaper.
Should the BSP decide to reduce rates next week, Jonathan Ravelas, senior adviser at professional services firm Reyes Tacandong and Co., said the impact on the economy could last for a year.
Ravelas said the Monetary Board is expected to maintain policy rates in December, unless there is another reduction in United States Federal Reserve rate cuts.
He also does not see any off cycles and increases in policy rates any time soon. However, former Socioeconomic Planning Secretary Dante B. Canlas said that if there is a surge in inflation in September due to the recent typhoons, there is a chance for an off cycle.
‘The MB [Monetary Board] may still stick to its announced plan to cut interest rates. The GDP growth is at risk; ADB [Asian Development Bank], for example, downsized already its GDP growth forecast for the Philippines,’ Canlas said.
Meanwhile, HSBC Asean economist Aris Dacanay likened the BSP’s careful calibration of monetary policy to how a driver parks his or her car.
In Filipino parlance, this is atras-abante which literally means backward-forward, actions needed to move a car to fit parking spaces with exact dimensions.
‘As the BSP nears the end of its easing cycle, finding the right monetary stance has become an exercise of making small adjustments. Like parking one’s car, calibrations to monetary policy will likely be made in increments based on marginal movements of the data on hand,’ Dacanay said. ‘We think the BSP’s monetary policy decision on the 9th of October will be a tough call between a hawkish cut or a dovish hold.’
Given this, Dacanay said he is penciling in a rate hold next week, which means BSP will keep its policy rate at 5 percent. At this point, he said, this data is limited on whether the economy is slowing.
He noted that consumer vehicle purchases are falling and government capital spending is tightening while goods exports are holding. Dacanay said domestic demand has also been firm with the imports of capital and consumer goods both steady.
Further, Dacanay said inflation risks should be considered, given that core inflation increased 2.7 percent and headline inflation at 1.5 percent. He said inflationary pressures are expected to persist due to typhoons Nando and Bualoi.