ANZ Research discounts the need for further easing in the Bangko Sentral’ s key policy rates this year, after the 175 basis points cut to date, due to low inflation environment.
In August, the rate of price increases dipped to 2.4 percent after rising in the previous two months, with the July print at 2.7 percent.
To date, average inflation stood at 2.5 percent, at the lower half of the government’s 2-4 percent target band until 2022.
Core inflation, which excludes volatile food and oil items, also decelerated last August to 3.1 percent from month-ago’s 3.3 percent, bringing the eight-month average to three percent.
ANZ Research said it forecasts domestic demand to remain weak compared to the pre-pandemic level as economic activity remains slow due to the pandemic.
“The soft August manufacturing PMI further attests to the weakness in economic activity,” it said, referring to the slide of the Purchasing Managers Index to 47.3 from 48.4 in the previous month.
PMI is among the major economic health gauges for the manufacturing and service sectors. A PMI reading of below 50 suggests a deterioration while a level above 50 shows improvement.
ANZ Research said that since movement restrictions and its economic impact continue to dampen domestic demand, “we do not expect headline inflation to gain materially from here”, as it forecasts inflation to average this year “closer to the lower bound” of the government’s target band.
“We continue to expect price pressures to remain mild and not present any challenge to monetary policy. At the same time, sufficient liquidity in the financial system and incomplete transmission of previous cuts in the policy rate do not make a case for further easing at this stage,” it added.
BSP’s policy-making Monetary Board has aggressively reduced the central bank’s key policy rates to help buoy the domestic economy from the impact of the pandemic.
Monetary authorities, however, decided to keep the key rates steady during the Board’s rate setting meeting last August 20, after noting inflation remains manageable and to allow the impact of the previous cuts to work its way into the economy.