THE DOWNTREND in inflation will give the central bank room for further monetary easing to support to the economy during the pandemic emergency, Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said.

“Clearly, the more benign inflation provides the Monetary Board greater room for easing,” Mr. Diokno said in a text message.

A BusinessWorld poll of 14 analysts yielded a median inflation estimate of 2.1% for April, which, if realized, will mark the third successive month of declining inflation. The indicator had come in at 2.5% in March. In April 2019, inflation was 3.1%.

The BSP now sees inflation averaging 2% this year, down from the 2.2% estimate issued in March but still within the 2-4% inflation range targeted by the BSP for 2020 and 2021.

The Philippine Statistics Authority will report April inflation data today, May 5.

The continued decline in global oil prices remained the major downside risk to inflation for April. Most analysts said this will offset upside risk from higher prices of rice and vegetables.

In a bid to curtail the impact of the pandemic on the economy, the central bank resorted to an off-cycle 50 basis-point (bp) rate cut on April 16. This lowered lending and deposit rates to 3.25% and 2.25%, respectively.

After cutting 125 bps this year following the 75 bps worth of reductions in 2019, Mr. Diokno said the BSP will assess how lenders are responding to the easing.

“[S]ince monetary policy works with a lag, it would be prudent on the part of the MB (Monetary Board) to see how the aggressive policy measures it has adopted have been absorbed by the financial system,” Mr. Diokno said.

The BSP has completely unwound the 175 bps worth of rate hikes imposed in 2018 when inflation was at a multi-year high.

Security Bank Corp. Chief Economist Robert Dan J. Roces said that the BSP should weigh the timing of the next easing.

“It is prudent on the part of the BSP to assess effects of prior policy moves, since it has ample space for both policy and RRR (reserve requirement ratio) cuts,” Mr. Roces said in a text message.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said low inflation allows for the possibility of another off-cycle rate cut.

“Local policy rates could still be cut by at least 25 bps anytime soon (off-cycle easing) as fundamentally supported by the easing inflation trend,” he said in a text message, adding that a 200 bps RRR reduction soon cannot be completely ruled out.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said further easing “may have to wait” in order for the BSP to conserve ammunition in case the global economy weakens further.

“If BSP cut more rates nearer the annual inflation forecast (of 2.2%), this would not be an ideal position to be in. There should be enough space,” Mr. Asuncion said in a text message.

He said that the BSP should also take into account inflationary pressures associated with the recovery emerging as early as 2021.

“There is a distinct possibility that the recovery, not just domestically but globally, will be much more inflationary especially when demand starts to pick up everywhere,” he said.

Mr. Diokno said he expects gross domestic product to contract by up to 0.8%, citing the impact of the two-month lockdown on areas important to the economy. If realized, this would be a major climbdown from the 6% revised growth recorded in 2019 based on 2018 prices, as well as the 6.5% to 7.5% target set by the government before the pandemic.

The next rate-setting meeting is set for June 25, after the Monetary Board canceled its scheduled policy meeting on May 21 following the off-cycle rate cut in April. — Luz Wendy T. Noble