MANULIFE Investment Management and Trust Corp. (Manulife IM Philippines) expects inflation to recede within the government’s 2-4% target band by the fourth quarter, due to the high year-earlier base.

However, this could be offset by any sharp increase in global oil prices, Manulife IM Philippines Head of Fixed Income Jean O. De Castro said in a report.

This view is supported by the downward trend of headline inflation and the Bangko Sentral ng Pilipinas’ (BSP) policy actions, which have improved the outlook for Philippine bonds, Ms. Castro said.

The BSP on Wednesday said that it expects headline inflation in May to slow to 5.8% to 6.6%.

If this forecast is realized, it would be the 14th month inflation has exceeded the BSP’s 2-4% target. Headline inflation was 6.6% in April.

The low end of the BSP forecast — 5.8% — would be lowest inflation level since the 5.4% recorded in May 2022.

The Philippine Statistics Authority will release May inflation data on June 6.

The BSP kept policy rates unchanged at 6.25% at its May 18 meeting and signaled that borrowing costs could remain unchanged at its next two or three meetings.

This is the first time the BSP left rates untouched in nine meetings. Since it began its monetary tightening cycle in May 2022, the central bank had raised borrowing costs by 425 bps.

Manulife IM Head of Equities Mark A. Canizares noted that moderating inflation could support share prices in the second half.

Residential property could be supported by this tailwind, while domestic consumption could benefit from easing raw material and other input costs, he added.

The market’s focus will likely shift to when interest rates will be brought down if inflation continues to decline. Lower rates typically drive rallies in equity markets, Mr. Canizares said.

The Philippine Stock Exchange index fell 46.78 points or 0.72% to close at 6,430.58 on Thursday, while the broader all shares index fell 14.45 points or 0.41% to 3,443.85. — Aaron Michael C. Sy