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With the below-forecast inflation data from the Philippines, mainly due to easing food and fuel prices, analysts at the Australia and New Zealand Banking Group (ANZ) expect further weakness in the price pressure. The report also supports the claim of BSP’s 0.25% rate cut in May month meeting.

Key quotes

Easing food and fuel prices saw February headline inflation at 2.6% y/y, undershooting estimates.

Inflationary pressures will likely remain modest amid lower global crude prices. The COVID-19 outbreak and its attendant impact on the economic activity should also suppress price pressures, although in the near term it may enhance volatility across the components of the inflation basket.

Our current call is for the Bangko Sentral ng Pilipinas (BSP) to cut its policy rate by 25bps at its May meeting. That said, the COVID-19 outbreak and the ‘emergency’ easing by the US Federal Reserve have increased the odds for a cut in March. A deeper rate cut cycle is also likely.