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Economic growth

Philippine Inflation Likely Slowed in July, Giving BSP Space to Cut Interest Rates

Strategic Insights

— 2 min read

The Philippine Statistics Authority (PSA) is set to release official July inflation data, which is expected to show a slowdown in headline inflation to as low as one percent, driven by base effects and moderating food prices. This would be the fifth straight month that inflation stays below the Bangko Sentral ng Pilipinas (BSP) target of two to four percent. Economists predict a lower interest rate cut by the BSP, with some projecting as early as this month to support economic growth.

Key Takeaways:

  • Economists expect July headline inflation to ease to 1.1 percent year-on-year, with a modest rebound in prices driven by higher costs of oil, electricity, and select food items.
  • Analysts from ANZ Research and HSBC are more bullish, pegging July inflation at just one percent, attributing the downtrend to base effects and subdued price movements across major commodity groups.
  • Base effects from July 2024, when inflation spiked to 4.4 percent, continue to contribute to the slowdown in inflation.
  • The BSP has room to cut policy rates again in August, but further easing beyond the third quarter may be more cautious due to external factors.
  • Interest rate cut projections vary among economists, with BPI's Jun Neri expecting a 25-basis-point rate cut this month.
  • Metrobank's Nicholas Mapa noted that inflation staying 'well within target' gives the BSP 'ample space to cut rates and support moderating growth momentum.'
  • HSBC's Aris Dacanay cautioned that external developments such as higher-for-longer US rates and tariff-related global uncertainties could limit the central bank's flexibility later in the year.

Statistics:

  • July headline inflation is expected to ease to 1.1 percent year-on-year.
  • Economists expect inflation to reaccelerate to the three-percent mark in the fourth quarter.
  • The BSP has so far cut rates by 125 basis points since August last year.
  • BPI's Jun Neri projects a 25-basis-point rate cut this month.
  • Metrobank's Nicholas Mapa sees ample space for the BSP to cut rates and support moderating growth momentum.
  • HSBC's Aris Dacanay expects domestic demand to keep the economy intact, but lower interest rates will unlikely be enough to fully offset the drag of a challenging global environment.

Sources:

  • "BSP sees room to cut policy rates in August" by Krista Angela Abella, BusinessWorld, August 2024
  • "ANZ sees July inflation hitting just one percent" by INQUIRER.net, August 2024
  • "HSBC sees inflation to begin steady climb as base effects fade" by BusinessMirror, August 2024
  • "Metrobank's Mapa: BSP has ample space to cut rates" by BusinessWorld, August 2024
  • "BPI's Neri expects 25-basis-point rate cut in August" by INQUIRER.net, August 2024

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