The Bangko Sentral ng Pilipinas is expected to cut interest rates soon, despite a slight uptick in inflation in January, as slowing growth and weak demand weigh on the economy.
Headline inflation rose to 2 percent year on year, above market expectations and up from 1.8 percent in December, marking the first time in 11 months that prices returned to the BSP’s 2-4 percent target range.
HSBC ASEAN economist Aris Dacanay said January inflation has complicated the policy debate but is unlikely to stop further easing.
The upside surprise came mainly from firmer core inflation rather than broad-based price pressures. Dacanay said this “potentially complicates the path of monetary easing,” but added that inflation dynamics remain far from alarming.
Some price increases were driven by factors with limited impact on future inflation. Rice prices edged up but were partly offset by falling vegetable prices following a correction after weather-related spikes in December.
Electricity inflation also rose unexpectedly, even though Manila’s grid operator announced a 1.2 percent reduction in power rates in January.
HSBC maintains its forecast for a 25-basis point cut, which would bring the policy rate down to 4.25%.
