BSP likely to adopt RRP cut by 25 bps in May if Philippines inflation in April remains benign, says ANZ Research

Bangko Sentral ng Pilipinas (BSP) is expected to cut its Overnight Reverse Repurchase Rate (RRP) by 25bps at its May meeting if inflation print in April remains benign, according to the latest report from ANZ Research.

March inflation data has cemented the downtrend in inflation, which peaked in September last year. The headline figure is now close to the mid-point of the central bank’s 2-4 percent target band. On a sequential basis, CPI was flat in February, even as food prices contracted by 0.8 percent on the back of falling rice and corn prices.

A rise in the ‘housing & utilities’ (0.5 percent m/m) and ‘transport’ (1.8 percent m/m) components offset the drop in food prices. Meanwhile, core CPI increased 0.25 percent m/m during the month. Annual headline inflation eased to 3.3 percent y/y in March (from 3.8 percent in February), moving closer to the midpoint of the target band (3.0 percent).

Though slowing food prices were a large contributor, annual rates decreased or remained the same for nearly all major components. This was reflected in the core inflation print, which slowed to 3.5 percent y/y in March from 3.9 percent previously.

"Although reports suggest a milder occurrence this year, it remains a key upside risk. Assuming that the inflationary impact of the El Niño is mild, we see headline inflation around the mid-point of the BSP’s target in the coming months. We forecast average inflation in 2019 at 2.9 percent," the report further commented.