By Luisa Maria Jacinta C. Jocson, Reporter

HEADLINE INFLATION likely remained steady in June and settled within the central bank’s 2-4% target for a seventh straight month, analysts said.

A BusinessWorld poll of 14 analysts yielded a median estimate of 3.9% for the consumer price index (CPI) in June. This is within the 3.4-4.2% forecast of the Bangko Sentral ng Pilipinas (BSP) for the month.

If realized, June inflation would match the 3.9% in May. It will also be slower than the 5.4% print in the same month a year ago.

The Philippine Statistics Authority (PSA) is set to release June inflation data on Friday (July 5).

“We expect inflation to remain unchanged at 3.9% year on year in June. Soaring prices of rice over the last few months have broadly stabilized, as we’ve passed the peak of the dry spell period,” Sarah Tan, an economist from Moody’s Analytics, said in an e-mail.

The staple grain is one of the significant contributors to the country’s inflation. Rice inflation eased to 23% in May from 23.9% a month earlier, marking the second straight month of slower inflation as global rice prices declined.

“We forecast that inflation remained at 3.9% in June. For the next six months of 2024, however, we believe that inflation could ease to an average of 2.6%. This is primarily because of the impact of the lower tariff on imported rice,” Philippine National Bank economist Alvin Joseph A. Arogo said in an e-mail.

Rice prices are seen to drop further after President Ferdinand R. Marcos, Jr. last month signed Executive Order No. 62, which slashed tariffs on rice imports to 15% from 35% previously.

The month of June also saw lower electricity rates, HSBC economist for ASEAN (Association of Southeast Asian Nations) Aris Dacanay said in an e-mail.

“Electricity rates in the Philippines fell by around 17% year on year due to an order by energy authorities to stagger the collections distributors would need to cover their wholesale electricity purchases in May, in contrast to a one-time, big-time price adjustment. This represents a big fall in the inflation outlook,” he said.

Residential customers served by Manila Electric Co. saw a P1.9623 per kilowatt-hour (kWh) reduction in their electricity bills for June. This brought the overall rate down to P9.4516 per kWh in June from P11.4139 per kWh in May.

This after the Energy Regulatory Commission ordered all distribution utilities and electric cooperatives to implement a staggered collection of charges on their purchases from the Wholesale Electricity Spot Market in May.

On the other hand, analysts also cited upside risks that could stoke inflation.

“Upward price pressures in June likely came from other agricultural produce besides rice. For example, pechay — a leafy vegetable commonly used in Filipino cuisine — and ginger were reported by authorities to record higher average retail prices in the first half of June, compared with May,” Ms. Tan said.

Mr. Dacanay also noted inflationary pressures from fruit and vegetables such as calamansi, snow cabbage and eggplant.

“Continued peso weakness and elevated food inflation could add into further inflationary pressure,” Zamros Bin Dzulkafli, economist at Maybank Investment Banking Group, said in an e-mail.

The peso depreciated by 10 centavos to P58.61 against the greenback as of end-June from P58.51 as of end-May.

For the month, its weakest close was at P58.86 per dollar on June 26. This was its worst finish in 20 months.

POLICY IMPACT
Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said that if inflation can remain close to target over the next few months, this may fuel the chances of a rate cut.

“If the print for both June and July stays close or below 4%, we think the chances of a BSP (rate) cut in August will be pretty high whether the Federal Open Market Committee cuts rates in July or not,” he said in a Viber message.

BSP Governor Eli M. Remolona, Jr. last week said that the central bank is on track to cut rates by its Aug. 15 meeting.

Security Bank Corp. Chief Economist Robert Dan J. Roces said that inflation is expected to remain elevated but will moderate by July and August and return to within target by September.

The BSP sees inflation potentially breaching the 2-4% target in July before returning to target.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that inflation could settle slightly above the 4% levels in June to July amid base effects then return to within target from August to December.

“Assuming the June print remains within the target range, then I think the BSP can feel confident from the next meeting (August) onwards to start easing gradually, as June should mark the peak of headline inflation for the year,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said.

Ms. Tan said that the central bank will want to wait for inflation to further ease before making any moves.

“We expect inflation to moderate in the third quarter, which will allow the BSP to start planning for its monetary policy easing,” she said.

At its policy meeting last week, the BSP said that an improved inflation outlook would allow a “less restrictive” policy stance.

“Still, the BSP cautioned that there are uncertainties in external conditions that could keep inflation from receding at the anticipated pace. Should the inflation print for June match or ease from May, this will give the BSP confidence to begin its policy easing cycle sooner rather than later,” Ms. Tan added.

On the other hand, Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said that the BSP could delay its easing to the fourth quarter.

“We sense the weak peso paired with oil price upticks recently, argue for the BSP delaying its rate cut to the fourth quarter when the US Fed is expected to trim its policy rate as well,” he said in an e-mail.

Mr. Asuncion said that the BSP may want to keep interest rates elevated for now to “mitigate the risk of a buildup of cost pressures from this tandem of weak peso and high oil prices, that can conspire to reignite faster second-round price effects later in the year,” he added.

Mr. Remolona has said that the BSP “occasionally” intervenes in the peso to ensure that it does not depreciate sharply.

“However, the BSP may not want to wait for the US Fed in the event it delays its rate cuts to early next year, since the sky-high, real interest rates across the local curve — a by-product of BSP’s high interest rate policy — may severely restrain production and investment activities into next year,” Mr. Asuncion added.

The Development Budget Coordination Committee expects the peso to range from P56 to P58 this year.

RESIDENTIAL PROPERTY PRICES nationwide rose at a slower pace in the first quarter, the Bangko Sentral ng Pilipinas (BSP) said.

Data from the central bank showed that the Residential Real Estate Price Index (RREPI) rose by an annual 6.1% in the January-March period but slowed from the 6.5% growth in the previous quarter and 10.2% expansion a year ago.

This was also the weakest growth in nationwide home prices since the 2.6% recorded in the second quarter of 2022.

On a quarterly basis, residential property prices grew by 1.1%, a turnaround from the 3.6% decline in the fourth quarter.

The RREPI tracks the average price changes of residential properties across different housing types and locations. This provides the central bank with insights into the property market, which is regulated due to bank exposure.

Joey Roi H. Bondoc, associate director for research at Colliers International Philippines, attributed the slowing price growth to weak demand for residential projects.

“We are seeing flattish growth in prices due mainly to tepid demand in the residential market. In Metro Manila, only 3,000 units were sold in the pre-selling sector, down 52% year on year. We are also seeing this in terms of launches, which dropped 59% year on year,” he said in an e-mail.

Data from the BSP showed that prices of condominium units rose by 10.2% year on year. This was faster than 4.1% a quarter earlier and 1.2% in the same period a year ago.

Duplex housing unit prices jumped by 36.2% in the first three months, a turnaround from the 33.5% contraction a quarter ago and faster than the 22.1% growth a year prior.

Prices of townhouses grew by 5.6%, faster than 4.9% in the fourth quarter and 1.8% in the same period in 2023.

Meanwhile, prices of single-detached/attached houses rose by 5.1%. This was much slower than 9.5% in the previous quarter and 17% a year ago.

Mr. Bondoc noted that horizontal projects remain attractive, especially among overseas Filipino workers (OFWs) but demand has yet to return to pre-pandemic levels.

Housing prices in the National Capital Region (NCR) went up by 2.8% in the first quarter, slower than 4.3% a quarter ago and 7.3% a year earlier.

“On a year-on-year basis, residential property prices in the NCR rose by 2.8% in the first quarter of 2024 as the growth in the prices of townhouses and condominium units outweighed the decline in the prices of single-detached/attached houses,” the BSP said.

On the other hand, housing prices in areas outside NCR (AONCR) jumped by 7.4%, slower than 7.8% in the fourth quarter and 11.4% in the year prior.

“We are projecting demand growth to come from areas outside NCR, including central Luzon, Calabarzon, Western Visayas, Central Visayas, and Davao Region especially for house-and-lot and lot only developments,” Mr. Bondoc said.

Meanwhile, residential and real estate loans granted for all types of new housing units rose by 8.9% in the first quarter, much slower than the 30.5% growth in the fourth quarter and 16% a year ago.

Broken down, housing loans in NCR and AONCR increased by 3.2% and 11.4%, respectively.

Majority of the loans were used to purchase single-detached/attached houses (43%), condominium units (34.7%), and townhouses (22%).

In the first quarter, the average appraised value of new housing units in the Philippines stood at P82,260 per square meter (sq.m.).

The average appraised value in NCR stood at P132,743 per sq.m., while the average appraised value in AONCR was at P61,163 per sq.m.

“Moving forward, we expect developers to be more cautious in launching pre-selling condominium units in Metro Manila given that the remaining inventory life (RIL), or the length of time needed by the market to absorb pre-selling and ready for occupancy (RFO) units, is still at about three years,” Mr. Bondoc said.

He also noted the impact of elevated interest and mortgage rates.

“While horizontal (house-and-lot and lot only) projects are among their preferred properties, still elevated mortgage rates compel OFW buyers to wait-and-see,” Mr. Bondoc said.

The Monetary Board has kept its benchmark rate unchanged at 6.5%, the highest in over 17 years, for a sixth straight meeting last week.

“If there is no interest rate cut for the remainder of the year, we might still see tepid demand in the residential sector. Given this, we do not see a substantial spike in demand and prices for the remainder of 2024,” he added.

BSP Governor Eli M. Remolona, Jr. has said it is still on track to easing rates as soon as August, by possibly 25 basis points (bps).

The central bank could reduce rates by 25 bps again in the fourth quarter, he added. — Luisa Maria Jacinta C. Jocson

THE NATIONAL GOVERNMENT’S (NG) gross borrowings surged in May amid a rise in external debt due to the dollar bond issuance, data from the Bureau of the Treasury (BTr) showed.

The NG’s gross borrowings jumped by 76.7% to P259.334 billion in May from P146.783 billion in the same month a year ago.

Month on month, borrowings nearly tripled from P89.202 billion in April. 

This as gross external debt skyrocketed (751%) to P127.613 billion during the month from P14.991 billion a year earlier.

This was composed of P115.247 billion in global bonds and P12.366 billion in new project loans. There were no program loans during the month.

Meanwhile, gross domestic debt slipped by 0.05% to P131.721 billion in May from P131.792 billion in the same month a year ago.

This consisted of P121.721 billion in fixed-rate Treasury bonds and P10 billion in Treasury bills.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that the spike in borrowings was due to the dollar bond issuance during the month.

In May, the government raised $2-billion issuance of the dual-tranche 10- and 25-year fixed-rate dollar bonds, its first global bond sale of the year.

“Higher interest rates and weaker peso exchange rates also increased the debt servicing costs of the NG that required more borrowings,” Mr. Ricafort said.

The Monetary Board has kept its benchmark rate at 6.5%, its highest in over 17 years.  The central bank raised borrowing costs by 450 basis points (bps) from May 2022 to October 2023.

In May, the peso sank to P58-per-dollar level for the first time since November 2022.

For the first five months, the NG’s gross borrowings rose by 16.1% to P1.42 trillion from P1.22 trillion in the same period in 2023.

Gross domestic borrowings jumped by 32.9% to P1.17 trillion as of end-May from P880.905 billion in the year prior.

On the other hand, gross external debt declined by 26.8% to P251.712 billion as of end-May from P343.874 billion.

“Going forward, possible Fed rate cuts in 2024 and 2025 that could be matched locally would help ease the NG’s interest expense,” Mr. Ricafort said.

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. has signaled that the central bank can begin its policy easing cycle by August.

The BSP could cut by up to 25 bps in the third quarter and another 25 bps in the fourth quarter, he said.

This would be ahead of the US Federal Reserve, which is widely expected to begin easing by December.

The government’s borrowing program is set at P2.57 trillion this year. — Luisa Maria Jacinta C. Jocson