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May 27, 2024

Metrobank lowers inflation forecasts, expects downward trajectory in prices

Metropolitan Bank & Trust Co. (Metrobank) has revised its inflation forecasts for the next two years, reflecting a slowdown in the pace of price increases over the past five months.

In its latest bulletin, Metrobank Research announced that it has lowered its inflation projections for 2023 to 5.8 percent from six percent, and for 2024 to 4.3 percent from 4.5 percent.

While inflation cooled to 5.4 percent in June from 6.6 percent in May, it still averaged 7.2 percent in the first half of the year, exceeding the target range set by the Bangko Sentral ng Pilipinas (BSP) of two to four percent.

Metrobank Research anticipates that inflation will continue to follow a downward trajectory due to base effects, without supply and price shocks.

The bank expects inflation to further decelerate in the coming months and fall within the BSP’s target range in the last two months of the year, aided by base effects, benchmark rate hikes, and lower global oil prices.

Despite the recent decline in inflation, Metrobank Research cautions that elevated inflation will persist due to ongoing risks related to price constraints on key food commodities, the impact of wage hikes, and the impending El NiƱo phenomenon.

The bank suggests that the current inflation trend provides room for the BSP to cut interest rates by the end of the year, after implementing aggressive rate hikes to combat inflation and stabilize the peso.

Metrobank Research also highlights the potential for a pause in the rate hikes and rate cuts in late 2023, considering the downward trend in inflation expectations.

Additionally, the bank notes that the BSP continues with liquidity management operations by setting an overnight rate as a market reference following the discontinuation of the London Interbank Offered Rate (LIBOR) on June 30.

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