Philippine inflation at 16-month low doesn’t rule out rate hikes

THE Philippine central bank said that it is ready to resume monetary policy tightening to forestall price pressures even as inflation cooled to a 16-month low in July.

Bangko Sentral ng Pilipinas (BSP) “stands ready to adjust the monetary policy stance as necessary to prevent the further broadening of price pressures as well as emergence of additional second order effects in view of the persistent upside risks to the inflation outlook,” the central bank said in a statement on Friday (Aug 4).

The comment followed official data that showed consumer prices rose 4.7 per cent in July from a year earlier. That was the slowest pace since March 2022, and lower than the 4.9 per cent median estimate. The core measure, which strips out volatile food and fuel prices, also eased to this year’s lowest at 6.7 per cent.

The Philippine central bank, which has waged the most aggressive monetary-policy tightening campaign in South-east Asia with 425 basis points of hikes, is signalling there’s still room for rates to rise from the current 16-year high or at least stay at that level to quell stubborn inflation.

The BSP, which has stood pat in the past two meetings, isn’t the only one to be weighed by inflation concerns. Malaysia ended an extended pause to deliver a hike in May, while Thailand increased borrowing costs for a sixth time earlier this week to ensure inflation returns to target durably.

Higher wages and lingering food supply constraints that may be further hampered by the El Nino weather, recent storms as well as higher transport costs were cited as key risks by the BSP. It retained the view that inflation will decelerate back to the within the 2 per cent to 4 per cent target band next quarter.

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Governor Eli Remolona told CNN Philippines in an interview before the July data that the country isn’t out of the woods yet on inflation and policymakers are ready to hike as soon as the Aug 17 policy meeting, if necessary. In his interview with Bloomberg last month, the governor signalled that he’s open to further tightening.

Finance Secretary Benjamin Diokno, a member of the rate-deciding panel, said after the Friday print that the country is “over the hump” on inflation. BLOOMBERG