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Sept inflation slows down; BSP rate cut seen

Rappler.com
The rise in commodity prices eased in September after two consecutive months of uptick following the series of typhoons and monsoon rain that hit the country

MANILA, Philippines (UPDATED) – Annual inflation eased slightly in September due to the slower increase in prices of utilities, among others, giving the central bank more room to cut its policy rates.

In a report released Friday, October 5, the National Statistics Office (NSO) said inflation eased to 3.6% in September from 3.8% in August. Inflation a year ago was 4.7%.

The latest figure brought the 9-month average to 3.2%, at the low end of the 3% to 5% full-year target of Bangko Sentral ng Pilipinas (BSP).

The low inflation data will allow the BSP to adjust its benchmark interest rates in order to support economic growth this year, economists said.

Utility prices

Inflation was pulled down largely by the deceleration in the rate of the utilities — housing, water, electricity, gas and other fuels — index to 4.5% in September from 5.6% in August.

“Slower annual gains” were also seen in the “clothing and footwear index; health index; and restaurant and miscellaneous goods and services index,” said the NSO.

The other commodity groups, however, registered higher annual hikes or retained their rates.

“The annual adjustment of the food index alone picked up to 3.6% in September from 3.3% in August,” the NSO noted.

In the two consecutive months prior to September, overall inflation went up, no thanks to higher food prices, which stemmed from disruptions in the transport of goods.

The Philippines was hit by heavy flooding in many areas in July and August, due to a series of typhoons and monsoon rain.

Rate cut

Inflation is one of the main factors the BSP looks at when adjusting its interest rates.

The BSP’s rates are used as benchmark for the rates that local banks charge on their loans.

Low rates boost demand for bank loans that, in turn, spur consumption and investments, boosting the economy. But since low rates increase demand, they also accelerate inflation.

With easing inflation in September, however, some economists expect the central bank to cut its rates.

“This should provide more confidence for BSP to cut interest rates by another 25 basis points,” University of the Philippine Professor Benjamin Diokno, said in a statement.

BSP Governor Amando Tetangco Jr earlier said that the current rates were appropriate, but they could be lowered if needed to support growth amid the weak global economy.

The BSP’s rates stand at record lows of 3.75% for overnight borrowing, and 5.75% for overnight lending.

Diokno said any interest rate cut should be “complemented by a stronger fiscal response.”

“Public spending, especially for public infrastructure, should be accelerated,” he said. – Rappler.com

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