bonus365 ‘Target consistent’ inflation seen until 2026

Inflation could settle within the 2 to 4 percent target range of the Bangko Sentral ng Pilipinas (BSP) this year until 2026 barring any supply shocks, a condition that would be supportive of the central bank’s ongoing campaign to boost economic growth, Metrobank Research said.

In a commentary, Metrobank said it expects inflation to average 3.2 percent in 2024 and in 2025, although it noted that “demand-side” price pressures would increase as the BSP continues to reduce borrowing costs.

Sans any supply problems, the bank said inflation would average 3 percent in 2026.

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Moving forward, Metrobank said a “target consistent” inflation path would clear the way for further easing, with a third rate cut likely on the table at the Dec. 19 meeting of the policymaking Monetary Board (MB).

“As the inflation projection continues to remain within target, Metrobank Research maintains its forecast of another 25-bp (basis point) cut in the BSP’s meeting in December, bringing down its year-end forecast for the reverse repurchase (RRP) rate to 5.75 percent in 2024,” it said.

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Inflation, as measured by the consumer price index (CPI), quickened 2.5 percent year-on-year last month, from 2.3 percent in October, following the onslaught of destructive typhoons that slammed onto the country from late October to mid-November, and the pass-through effect of a weak peso.

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Year-to-date, inflation averaged 3.2 percent, well within the the 2 to 4 percent target range of the BSP. The central bank said it would ”continue to maintain a measured approach in its easing cycle” despite the faster price growth last month.

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At present, the benchmark rate that banks typically use as a guide when charging interest on loans stood at 6 percent following two quarter-point cuts each at the last August and October meetings of the MB.

Metrobank said the below-consensus gross domestic product (GDP) growth in the third quarter boosted the case for another rate reduction this month.

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“The lower-than-expected GDP print in Q3 provides more reason for the BSP to deliver another 25-bp cut to further maintain momentum in consumption and investment growth,” it said.

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