BSP Hikes 2024 Inflation Forecast

The Bangko Sentral ng Pilipinas (BSP) has increased its average inflation projection for 2024 to 2.9% from 2.8% previously.

Photo Insert: Former BSP chief, Felipe M. Medalla pointed out that the main source of inflation for next year would be supply-driven.

“The main driver would be a continued opening up of the economy and the impact of a more hawkish Fed,” according to BSP Deputy Governor Francisco G. Dakila, Jr., noting that economic activity would be stronger next year.

BSP chief, Felipe M. Medalla pointed out that the main source of inflation for next year would be supply-driven. “Our own numbers show that the growth of supply is just behind the growth of demand. This inflation is a supply-driven inflation,” he said.

Medalla noted there is a possibility that gross domestic product growth will be slower next year, as “recent demand indicators suggest a likely moderation in economic activity over the policy horizon, reflecting the impact of the BSP’s cumulative policy rate adjustments as well as weak global growth prospects.”

The central bank also gave a 3.2% inflation forecast for 2025.

"The forecast is really model-driven. The factors that we considered include the outlook for oil, the futures prices for non-oil products, and the outlook for global economic growth,” Dakila said.

Medalla stressed the central bank is more focused on its domestic inflation outlook rather than the policy moves of the US Federal Reserve. If the US Federal Reserve hiked policy rates by 50 bps suddenly, he said it would be “hard to not respond.”

Medalla, who completed the unexpired term of his predecessor Benjamin E. Diokno, stepped down on July 3.

“(The President’s) choice for governor will likely inform our outlook for BSP’s policy stance, but should Mr. Medalla be reappointed, we expect BSP to be on hold for at least two more policy meetings before possibly cutting rates once inflation settles back within target,” ING Bank N.V. Manila senior economist, Nicholas Antonio T. Mapa, said in a note.

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said he expects the BSP to pause until inflation falls within the 2-4% target.

“Our own 5.4% full-year average forecast implies that the headline rate should return to this range in September, at the earliest, and fall further still, dropping below the 3% midpoint before the end of the year,” he said.

Capital Economics Senior Asia Economist Gareth Leather said Medalla gave no clear guidance over its next move, but the BSP may start to cut rates early next year. “The main reason we think the central bank will start cutting rates soon is that inflation is now firmly on its way down,” Leather said.

Another factor that should be considered is the slowing economic growth this year, he said.

“We think the country faces a difficult few quarters ahead as weak global demand and tight monetary policy weigh on prospects,” he added. The Monetary Board’s next policy meeting is scheduled for Aug. 17.

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