5-1-2024 (MANILA) Inflation in the Philippines decelerated to its slowest pace in nearly two years in December, but the annual average for 2023 remained above the central bank’s target range. The Bangko Sentral ng Pilipinas (BSP) held its ground, maintaining a “sufficiently tight” monetary policy, indicating persistent concerns about inflation despite a slowdown in the pace of price increases.
According to data released on Friday, the consumer price index for December increased by 3.9% year-on-year, down from 4.1% in November. This marked the slowest rate since February 2022 and the third consecutive month of easing inflation. Despite the slowdown, the average inflation rate for 2023 stood at 6.0%, well above the central bank’s target range of 2%-4%.
In a statement following the data release, the BSP’s Monetary Board asserted the need to maintain tight monetary policy settings until a sustained downtrend in inflation becomes evident. The BSP pledged to monitor inflation expectations and second-round effects, taking appropriate action to bring inflation back within the target range.
Economists surveyed by Reuters had projected an annual inflation rate of 4.0% for December, well within the central bank’s projection range of 3.6% to 4.4%. Core inflation, excluding volatile food and energy prices, was at 4.4% in December, down from 4.7% in the previous month.
Key contributors to the slowdown in inflation included a decline in food inflation to 5.5% in December from 5.8% in November, according to the statistics agency.
The BSP had maintained its benchmark interest rate at 6.5% in December for the second consecutive meeting, following a series of rate increases to curb inflation, including an off-cycle hike in October. The central bank’s next meeting is scheduled for February 15.
Chief economist Domini Velasquez at China Banking Corp in Manila expressed the view that the BSP had already implemented sufficient tightening despite additional supply-side risks. Velasquez anticipated that even if the BSP remains on hold, the central bank would not rush to cut rates due to lingering risks. She envisaged potential rate cuts by the second half of 2024.
