Philippine Inflation Rises as Central Bank Prepares to Cut Rates

(Bloomberg) -- Philippine central bank Governor Eli Remolona signaled a weaker chance for a rate cut next week after July inflation breached target and hit a nine-month high.

Consumer prices rose 4.4% on-year last month on higher utility costs, the statistics agency said Tuesday. That exceeded the 4.1% median forecast of economists in a Bloomberg News survey and surpassed the Bangko Sentral ng Pilipinas’ target for the first time this year.

The BSP is a “little bit less likely” to lower its benchmark rate at its Aug. 15 policy meeting after the July inflation print came in “slightly worse than expected,” Remolona told reporters at an event in Manila. The central bank had estimated inflation last month to come in between 4% and 4.8% on higher power and food costs.

He said policymakers would consider a rate cut if second-quarter economic growth — due out on Aug. 8 — would be “unexpectedly weak” and if inflation and inflation expectations show a downward path.

The central bank chief had telegraphed the potential of lowering borrowing costs from a 17-year-high this month as early as May, citing easing price risks. Last week, he said inflation may have already peaked in July, making an August rate cut “still a possibility.”

Asked whether a rate reduction this month is still on track, Remolona said “somewhat,” adding that the BSP is open to an off-cycle move if an August cut doesn’t happen. The Federal Reserve is likely to cut rates in September, he added.

The global market selloff that fueled bets that the Fed will pivot to easing soon gives policymakers across the world more scope to deliver rate cuts. The peso is trading below 58 against the dollar for a second straight day.

The central bank said separately Tuesday that inflation “will likely follow a general downtrend” starting this month. “The balance of risks to the inflation outlook has shifted to the downside for 2024 and 2025 due largely to the impact of the lower import tariff on rice,” BSP said in a statement.

The policymaking Monetary Board will also consider the latest economic growth data along with inflation in assessing the price outlook and balance of risks. Gross domestic product growth probably quickened to 6.3% in the second quarter, according to a separate Bloomberg survey.

What Bloomberg Economics Says...

The August rate decision will also hinge on 2Q GDP figures set for release later this week, and the peso’s resilience to current market turbulence will also need to be assessed. Altogether, next week’s BSP meeting looks to be a close call between a hold and a 25-bp rate cut.

—Tamara Mast Henderson, Asean economist

For the full note, click here

Rice inflation came in at 20.9% in July compared with 22.5% in June, and is likely to ease further this month, according to Claire Dennis Mapa, the head of the statistics agency.

A separate report on trade came out on Tuesday showing that exports contracted more than expected in June, although the trade deficit narrowed.

--With assistance from Cecilia Yap, Shinjini Datta, Manolo Serapio Jr. and Cliff Venzon.

(Updates with central bank chief’s comments.)