Manila. Philippine inflation eased to its lowest in nine years due to declines in commodities, giving the central bank scope to cut interest rates as the economy loses momentum due to low government spending and sluggish exports.
The consumer price index rose 1.6 percent in May from a year earlier, the lowest rate since at least 2006 based on comparable data, while prices on a month-on-month basis fell 0.1 percent compared with April’s 0.2 percent rise.
“Declining inflation is another reason that could argue for some monetary easing,” said Jose Mario Cuyegkeng, economist at ING Bank in Manila.
“BSP (central bank) is balancing inflation and financial sector stability for now since expectations are that fiscal performance would accelerate and support overall growth. If growth disappoints further, market talk of easing would likely intensify,” Cuyegkeng said.
Responding to the data, Bangko Sentral ng Pilipinas Governor Amando Tetangco took the glass half-full stance, saying that consumer price expectations continue to be “well-anchored.”
That sanguine view could change, however, if the worst of the El Nino dry weather phenomenon hits agricultural production, with analysts already seeing this year’s government growth target of 7 percent to 8 percent as ambitious.
In the first quarter, Southeast Asia’s fifth-largest economy unexpectedly slowed to its weakest pace since the depths of the global financial crisis in 2009, hurt by weak exports and as red- tape crimped government spending.
The Philippines, one of the world’s biggest rice buyers, is seeking to import 250,000 tonnes of the grain to boost its buffer stocks and help offset the El Nino impact on food prices.
In May, prices of food and non alcoholic beverage rose 3.2 percent compared with 3.9 percent in April, while the cost of electricity, gas and fuel fell a steeper 1.5 percent.
Core inflation, which strips out volatile food and fuel prices, was 2.2 percent, matching the rate in January.
For some, such as Bank of the Philippine Islands’ economist Nicholas Mapa, the prospect of higher interest rates in the United States and expected rebound in oil prices later this year would argue against policy easing.
Instead, Mapa is calling for a rate hike in the third quarter.
The central bank kept its benchmark interest rate steady at 4.0 percent for a fifth straight meeting on May 14, with inflation expected to stay well within its 2 percent to 4 percent target this year. It next meets on June 25 to review policy.
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