BSP sees rate cut when inflation hits 3%

BANGKOK (Bloomberg) – The Philippines central bank will consider easing monetary policy only when inflation nears the mid-point of its target, Deputy Governor Diwa Guinigundo said hours before data showing price gains cooled to a 15-month low.

“You don’t risk generating the pressures on inflation by either reducing the reserve requirement or bringing down the policy rate immediately,” Guinigundo said in an interview in Chiang Rai in Thailand on Thursday.

Inflation eased for a fifth consecutive month to 3.3 percent in March from a year earlier, cooling more than the 3.5 percent median estimate of economists. The average for the year is now at 3.8 percent, falling within the central bank’s 2 to 4 percent annual target. Moderating prices also stoked bets that lenders’ reserve requirement ratio could be cut.

“If the trend continues, then it’s only after that that one talks about monetary space or the flexibility to bring down the policy rates,” Guinigundo said in Thailand.

Bangko Sentral ng Pilipinas joins Bank Indonesia in adopting a cautious stance in dialing back aggressive rate hikes last year. In the Philippines, that could mean policy makers reversing the 175 basis points key rate increases between May and November 2018 or cutting the reserve ratio, which at 18 percent is the highest in Southeast Asia.

“Policy easing will eventually be delivered but could be delayed, because inflation has yet to be entrenched to the target,” said Emilio Neri Jr., an econo

mist at Bank of the Philippine Islands. A slower economic growth may compel the central bank to cut the required reserves earlier, Neri said after the inflation data.

Last year’s rate increases have yet to take root, Guinigundo said, citing a 12- to 18-month monetary policy lag. Swings in global oil prices and a prolonged El Niño dry spell are upside risks to inflation, he said.

It was the fifth straight month that inflation has eased and the slower-thanexpected 3.3 percent print marked the second month in a row that the rate has fallen below the top end of the central bank’s 2-4 percent target for this year.

The central bank expects inflation to continue to moderate further as the government begins to implement a new law that removed a two-decade- old cap on rice imports. Food prices account for about 35 percent of the consumer price basket.

Philippine policymakers have downplayed the impact on food prices of the current El Nino-induced dry weather, which they described as weak. Damage to crops, including paddy rice, due to the dry spell has crossed the 5 billion pesos ($96 million) mark as of this week, according to the agriculture department.

Last month’s price reading, which was below the 3.5 percent median forecast in a Reuters poll, brought the yearto-date inflation to 3.8 percent, which was within the central bank’s target.

The peso fell as much as 0.3 percent on Friday before trading little changed at 52.22 per dollar at 9:54 a.m. in Manila. The main stock index climbed 0.3 percent. (With Reuters report)