MONETARY authorities are expected to keep key interest rates steady today with inflation yet to settle firmly within target, analysts said.
Consumer price growth picked up for a second straight month in March, to 3.7 percent from February's 3.4 percent, as prices of key food items and transport costs rose.
While it stayed within the 2.0- to 4.0-percent target and was slightly lower than expected, the Bangko Sentral ng Pilipinas (BSP) has warned that inflation could again breach 4.0 percent in the next few months.
Analysts said it would only be prudent for the BSP's policymaking Monetary Board to hold fire anew for a fourth straight meeting.
The central bank's benchmark rate currently stands at 6.50 percent, the highest since 2007, following 450 basis points of increases beginning May 2022 as inflation surged in the wake of Russia's invasion of Ukraine.
Security Bank Corp. chief economist Robert Dan Roces said the March inflation result gave the BSP room to find a balance between controlling inflation and promoting economic growth.
"By holding rates at 6.5 percent, the BSP can continue to monitor the inflation trajectory and assess the impact of its previous rate hikes on the economy," he said.
Union Bank of the Philippines chief economist Ruben Carlo Asuncion echoed this, saying that the Monetary Board would opt to continue monitoring upside risks to inflation.
Dean Emmanuel Lopez of the Colegio de San Juan de Letran Graduate School said that ''though the current policy rate of 6.5 percent is the highest in 16 years, it must be maintained at least until the next policy meeting to maintain a semblance of stability in the economy's operational capacity".
China Bank Research, for its part, said that indications of reduced inflationary pressures from a weakening El Niño and other factors could allow the BSP to take a less cautious stance.
Still, "we think that the BSP will not cut its policy rate ahead of the Fed to prevent any additional inflationary pressure resulting from a significant depreciation of the peso," it said.
ING Manila Bank senior economist Nicholas Antonio Mapa said that with inflation hovering near the upper end of the target and the US Federal Reserve still to start easing, local interest rates were likely to stay unchanged for a while.
"[The] BSP indicated that it expects inflation to edge past the upper end of its 2-4 percent inflation target band in the coming months due to tight supply for agriculture products because of the El Niño-induced drought," he noted.
"Thus, we believe the BSP may extend its pause beyond the upcoming April meeting with a potential rate cut only likely in the second half of the year."
For Oxford Economics Japan economist Makoto Tsuchiya, rate cuts could start in June, but only if the central bank becomes more confident about the inflation direction and after the start of a Fed easing.
Philippine National Bank economist Alvin Arogo expects inflation to stabilize in the fourth quarter, which would mean the BSP only starting to cut in the last three months of 2024.
Bank of the Philippine Islands senior economist Emilio Neri, meanwhile, said the BSP would prioritize avoiding second-round effects and preventing inflation expectations from becoming unanchored.
"The BSP will likely remain prudent by keeping interest rates steady in the first half of the year," he said.
"Rate cuts might be considered once inflation stabilizes within the BSP's target range in the 3rd or 4th quarter."
For HSBC Global Research economist Aris Dacanay, there is no immediate need to begin lowering interest rates as economic growth remains robust.
The BSP can afford to maintain higher rates for an extended period to ensure that inflation expectations and the peso-dollar rate remain steady, he added.
"We still expect the first rate cut to be in the third quarter when inflation subsides to within the BSP's 2-4 percent target band," Dacanay said.
Room for rate cuts could open up later in the year once inflation expectations stabilize, Rizal Commercial Banking Corp. chief economist Michael Ricafort said.