A 25 basis points (bps) interest rate cut next month remains on the table despite anticipated modest increases in consumer prices resulting from Super Typhoon Carina and the intensified southwest monsoon, according to Rizal Commercial Banking Corporation chief economist Michael Ricafort.
He said that while a temporary rise in prices is likely in areas severely impacted by the typhoon—due to disruptions in logistics and damage to agriculture—this will be short-lived.
The typhoon’s effects could lead to higher vegetable and other produce prices, but price controls in disaster-struck regions are expected to help contain these increases.
The Department of Agriculture has estimated the damage to the agriculture sector at P696.87 million as of July 28.
Despite this, headline inflation eased to 3.7 percent in June from 3.9 percent in May.
Ricafort projected that inflation could see a temporary increase of 0.5 to 1 percentage point in July and August due to the typhoon, akin to the inflation spikes observed during Typhoon Ulysses in November 2020 and Typhoon Ondoy in September 2009.
However, this is likely to be mitigated by a 20 percent reduction in imported rice prices, which could lead to lower local rice prices and diminish the overall impact on inflation.
The anticipated 25 bps cut in the local policy rate, possibly effective as early as August 15, 2024, remains feasible, provided inflation stays within the 2 to 4 percent target range, Ricafort noted.
Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. earlier said that a 25 bps rate reduction could be implemented as soon as August.
