INFLATION is still expected to exceed target, an economist said, but will likely not be enough of a surge to significantly delay interest rate cuts.

"The breach in the inflation target may be temporary and may be more benign than originally expected, with inflation likely to ease in the 2nd half of the year," Bank of the Philippine Islands (BPI) senior economist Emilio Neri said.

Last month's result of 3.8 percent, still within the 2.0- to 4.0-percent target and below the market consensus of 4.1 percent, has led BPI to revise its full-year forecast to 3.5 percent from 3.7 percent, he added.

While Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. has warned of a possible delay in interest rate cuts to the first quarter of next year should inflation and growth turn out for the worse, Neri said that an easing in the second semester remained likely.

Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. PHOTO FROM BSP

"The BSP may keep its rates steady in the first half of the year, taking into account a possible above 4.0 percent inflation in the second quarter," Neri said.

"Rate cuts are possible in the 2nd half of the year once inflation is firmly within the target of the central bank," he added.

HSBC Global Research economist Aris Dacanay, meanwhile, said the likely breach of the inflation target "would be brief."

"Headline inflation will likely return to within the central bank's target band as early as August or September of this year," he added.

"[R]isks to the inflation outlook are tilted to the downside," Dacanay continued, noting that the Administrative Order 20, which ordered relevant government agencies to facilitate food imports, will improve supply conditions for food and help cool inflation.

In turn, there will be no rush for the central bank to cut key interest rates as the economy can withstand continued headwinds.

"Yes, first quarter 2024 growth came in weaker than we expected ... but all things considered, this growth rate does not warrant any early policy rate cut," Dacanay said.

First quarter economic growth was 5.7 percent, below the government's 6.0- to 7.0-percent target and the market expectation of 5.9 percent.

"With growth intact, the BSP continues to have the luxury to keep its monetary stance tight while the Fed maintains a more hawkish tone," Dacanay said.

"We only expect the BSP cut after the Fed (US Federal Reserve) in 4Q 2024," he added.

The BSP's benchmark rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of rate hikes beginning May 2022 as inflation surged in the wake of Russia's invasion of Ukraine.

Remolona has said that rate cuts — the first likely to be 25 basis points — will only be considered once inflation stays firmly within target.