November 22, 2023
MANILA – Inflation in the Philippines is expected to decelerate next year into the Bangko Sentral ng Pilipinas’ target range of 2 percent to 4 percent.
This is according to Goldman Sachs, which based its forecast on expectations that energy and food prices will remain well below the peaks seen last year.
“Inflation should continue to decline across most of emerging markets,” Goldman Sachs said in a report. “As in developed markets, we forecast a large disinflation of about 2-percentage points (full-year average basis) in 2024 in emerging markets.”
Also, Goldman Sachs expects that upward price pressures on goods would ease as supply chain bottlenecks have largely been resolved.
On the labor front, the American financial services group thinks that markets would remain tight in many economies, as “‘catch-up’ wage increases from the highest inflation period of the pandemic appears to have been implemented for the most part.”
Based on their data, the consensus forecast among analysts is a full-year print of 3.7 percent for the Philippines in 2024.
Goldman Sachs’ own forecast is 4.2 percent, which is above the target band albeit better than the BSP’s own forecast of 4.4 percent.
Rate cuts in 2024
On interest rates, the American group expects most Asian central banks to keep policy rates unchanged for most of 2024, considering that inflation is moderating and the United States Federal Reserve is signaling a higher-for-longer stance.
“We think BI [Bank of Indonesia] and BSP will likely be the first in the region to cut policy rates late next year, with a reduction of 25bp [or 0.25 percentage point] each in the fourth quarter as they have tightened the most,” Goldman Sachs said.
Following last week’s BSP decision to keep policy rates unchanged, analysts now see the benchmark keeping steady until the third quarter of 2024.
READ: BSP keeps rates steady
In their policy meeting on Nov. 16, the Monetary Board maintained the BSP’s policy rate at 6.5 percent, citing a moderation of their inflation outlook over the 2023-2025 forecasting horizon.
This followed an off-cycle increase of 0.25 percentage point that was announced last Oct. 26, when policy makers noted that the risks to their outlook continued to be significantly on the upside.
This led non-BSP analysts to the observation that the BSP remains hawkish despite a renewed pause on monetary policy tightening cycle, regarded as one of the most aggressive in the region. INQ