Economist Predicts Potential BSP Rate Cut in August Despite Recent Typhoons

MANILA – Despite the economic impacts of Super Typhoon Carina and the enhanced southwest monsoon, a 25 basis points cut in interest rates next month remains a possibility.
According to Philippines News Agency, Rizal Commercial Banking Corporation’s chief economist, Michael Ricafort, in a statement on Monday, noted that while there might be a temporary increase in consumer prices due to disruptions in logistics and agriculture, these are expected to be transitory. Ricafort pointed out that the damage to agriculture, which the Department of Agriculture estimated at PHP696.87 million as of July 28, could lead to a short-term spike in food prices, particularly for vegetables and other produce.

However, a prize freeze in areas declared under a state of calamity could mitigate these price increases. With headline inflation having eased to 3.7 percent in June from 3.9 percent in May, the economist forecasts a temporary inflation increase of 0.5 to 1 percentage point for July and August, drawing parallels to past typhoon-related upticks in 2020 and 2009. He also mentioned that this could be partially offset by a significant reduction in imported rice prices, which are expected to lower local rice prices, a key component of the inflation index.

Looking ahead, Ricafort remains optimistic about the potential for a policy rate cut by the Bangko Sentral ng Pilipinas (BSP) as early as August 15, 2024, especially if inflation remains within the target range of 2%-4%. BSP Governor Eli Remolona Jr. had previously hinted at the possibility of such a rate cut.

Additionally, Ricafort suggested that remittances from overseas Filipino workers and government spending are likely to increase in the coming months to aid the rehabilitation of areas severely affected by the typhoon. He believes these inflows will help spur business and economic activity, providing a counterbalance to the disruptions and damage caused at the peak of the typhoon.