THE BANGKO SENTRAL ng Pilipinas (BSP) will keep its policy settings “sufficiently tight” until inflation is seen to return within its 2-4% annual target, it said in a statement late on Tuesday.

“The Monetary Board deems it necessary to keep monetary policy settings sufficiently tight until inflation expectations are better anchored and a sustained downtrend in inflation becomes evident,” the BSP said following the October inflation release.

The central bank said it will consider the latest inflation outturn and third-quarter gross domestic product (GDP) data to be released on Thursday at its next policy meeting on Nov. 16.

“The BSP remains prepared to undertake further monetary policy action as necessary to prevent supply-side pressures on prices from leading to additional second-round effects and dislodging inflation expectations,” it said.

Headline inflation slowed to a three-month low of 4.9% in October from 6.1% in September and 7.7% in the same month in 2022. This was slower than the 5.7% median estimate in a BusinessWorld poll last week and below the BSP’s 5.1-5.9% forecast.

For the first 10 months, inflation averaged 6.4%, still above the BSP’s 5.8% forecast and 2-4% target for the year.

“The inflation path in the coming months is still seen to remain elevated with the 2024 central forecast shifting closer to the upper end of the inflation target range, indicating persistent price pressures,” the central bank said.

Risks to the outlook are also on the upside for this year up to 2025 amid the potential impact of higher transport fares, increased electricity rates, higher oil prices and minimum wage adjustments in areas outside Metro Manila.

“Meanwhile, the impact of a weaker-than-expected global recovery and successful implementation of government measures to mitigate the impact of El Niño weather conditions are possible primary downside risks to the outlook,” the BSP said.

“The BSP will continue to assess the data as they become available and determine the appropriate policy to bring inflation back within the target range without further delay, in keeping with its price stability mandate,” it added.

Meanwhile, Nomura Global Markets Research Chief ASEAN Economist Euben Paracuelles said in a note that inflation may average 6.2% this year and 3.8% in 2024.

Headline inflation may edge higher to 5.2% in November and December from the 4.9% in October, as food prices may still go up due to the El Niño weather phenomenon, he said.

However, core inflation may continue to decline amid waning demand-side pressures and a slower economic momentum.

“Base effects will start to become more favorable in the next few months, but similar to BSP’s assessment, headline inflation is unlikely to return to BSP’s 2-4% target until August,” Mr. Paracuelles said.

The BSP is unlikely to deliver another rate hike, he said.

“Overall, we believe BSP’s hiking cycle is over, with the current level of the policy rate of 6.5% remaining our forecast for the terminal rate in this hiking cycle,” he said.

Mr. Paracuelles added that the central bank will only start cutting borrowing costs in September 2024.

“This implies the total rate cuts BSP can deliver will be a smaller 75 bps (i.e., 25 bps in each of the remaining three meetings for 2024) versus our previous forecast of 150 bps. This takes our end-2024 forecast for the policy rate to 5.75% from 5% previously,” he said. — Keisha B. Ta-asan