'BSP rate cut looms as economy slows'

The Bangko Sentral ng Pilipinas (BSP) is still expected to press ahead with monetary easing despite a surprise pickup in January inflation, with economists flagging slowing growth and weakening domestic demand as the bigger policy concern in the months ahead.

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HSBC ASEAN economist Aris Dacanay said headline inflation’s return to the BSP’s target band complicates the near-term policy outlook, but is unlikely to derail an anticipated rate cut.

“After 10 months of floating below the BSP’s two to four percent target band, January headline inflation surprised to the upside, accelerating to two percent year-on-year,” Dacanay said, noting this was above market expectations.

The January print marked the first time in 11 months that inflation landed within the BSP’s target range. Inflation rose from 1.8 percent in December, driven largely by firmer core inflation, which Dacanay said “potentially complicates the path of monetary easing.”

Price pressures were evident in both non-core and core components. On non-core items, rice price increases were partly offset by lower vegetable prices. Electricity inflation, however, surprised on the upside even as Manila’s grid operator announced a 1.2-percent reduction in power rates in January.