The sharp moderation of inflation seen in the last quarter of 2014 and again in January this year has helped prevent the central bank from raising the policy rates, thus far this year, analysts at DBS Bank said.
But the Bangko Sentral ng Pilipinas (BSP) remains wary of such events as a sudden reversal of oil prices, as some experts predict, and, as a result, the monetary authorities were not seen to favor cutting interest rates so soon this year, the regional lender said. In a research note, DBS said the central bank will likely keep its monetary-policy stance as the monetary authorities train a keen eye on how oil prices behave in the international market.
“The rather sharp moderation in the consumer price index [CPI] inflation is the reason the BSP is reluctant to raise its key policy rates for now,” DBS Bank said. Inflation has trended downward since its peak in mid-2014, at 4.9 percent. Starting last September inflation has effectively been managed and brought down by the central bank, in large part because oil prices have retreated in the international markets. The Philippine Statistics Authority only recently reported that inflation, or the rate of change in prices, averaged 2.4 percent in January. Unlike other central banks in the region, however, the BSP was not seen to cut the policy rates just yet, according to such other analysts as those at JPMorgan, for instance.
“Indeed, we remain of the view that the central bank may actually prefer to tighten its policy further in the coming sessions,” the DBS Bank said.
“The recent uptick in global crude-oil price may lift CPI inflation slightly higher in the coming months,” according to DBS Bank, quickly adding that the country is still “definitely far” from the 4.5-percent trend seen in mid-2014, when the BSP stepped up on its monetary-policy normalization.
The central bank adopted a low inflation target for this year of 2 percent to 4 percent, from year ago of 3 percent to 5 percent, in recognition of the moderating pressure on prices as a whole.