'Inflation downtrend gives BSP room to cut rates'

The continued softening of inflation gives the Bangko Sentral ng Pilipinas (BSP) more elbow room to pivot the country's monetary policy stance after aggressively raising interest rates to tame inflation and stabilize the peso, according to economists.

- LAWRENCE AGCAOILI

Metrobank Research, the research unit of Metropolitan Bank & Trust Co., said the BSP Monetary Board is likely to lower the benchmark interest rate by 100 basis points this year.

"We think that policy rates may not need to be as restrictive as current levels throughout the year, especially if core inflation continues to move lower, as the average difference between the BSP policy rate and domestic headline inflation (from 20092023) has been at 28 basis points compared to 260 basis points currently," Metrobank Research said.

Headline inflation accelerated to six percent last year from 5.8 percent in 2022 amid soaring food and oil prices, breaching the BSP's two to four percent target for second consecutive years.

The consumer price index eased for the third straight month to hit a 22-month low of 3.9 percent in December, the first time it eased within the two to four percent target range in 20 months or since the four percent recorded in March 2022.

Metrobank Research still expects inflation to breach the central bank target at 4.3 percent this year.