London-based Capital Economics expects a total reduction of 50 basis points (bps) in key interest rates in the second half of the year against a background of stable but above target inflation and the “openness” of Bangko Sentral ng Pilipinas (BSP) to further rate easing.

“We are more dovish about the political outlook in the Philippines,” Capital Economics Asia economist Alex Holmes said in a report on Friday. He said they expected two 25bp cuts over the next six months to bring the policy rate to a new low of 1.5%.

“We also expect a 100bp drop in the RRR,” said Holmes, referring to the banks’ reserve requirement ratio.

“May’s inflation data shows the headline rate held steady at 4.5% for the third month in a row, despite rising fuel prices. This should further allay concerns about price pressures at BSP. , after the bank cut its inflation forecast for 2021 to 3.9%. With the recent spike in food prices likely to ease further and the base effects of last year’s crisis set to wane by On an annual basis, we expect headline inflation to fall near the bottom of the BSP’s 2-4% target by the fourth quarter, ”said Holmes.

Further, Holmes pointed to the recent statement by BSP Governor Benjamin Diokno that he was “open to doing more” monetary easing, while acknowledging that the current level of bank reserve requirements was “still high” at 12%.

The BSP Monetary Council will then discuss the stance of monetary policy on June 24.

In a separate report also released on Friday, Senior Economist for Asia, Miguel Chanco, of UK-based Pantheon Macroeconomics, said month-to-month food deflation was recorded in May. “[indicated] that the more recent government interventions on the supply side are working, for now.

“As a result, food inflation fell further to a six-month low at 4.6%. This will likely be the lowest, as base effects are expected to keep food inflation stable through the fourth quarter, ”Chanco said.

“We maintain that headline inflation still has a head start, despite its recent stability, as the recovery in global oil prices will continue to affect transport and utility costs,” he said. , adding that the persistent pressure on inflation would probably come from the housing and utilities component.

“All in all, we have revised our inflation forecast down slightly and now see it peaking at 5.8% in September,” Chanco added. —Ben O. from Vera

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