By Luisa Maria Jacinta C. Jocson, Reporter

FURTHER TIGHTENING by the Bangko Sentral ng Pilipinas (BSP) is unlikely unless inflation expectations take a turn for the worse, analysts said.

“More tightening is only likely if inflation expectations significantly worsen, potentially leading to a difficult decision between controlling inflation and economic growth,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

“Even more important is that our inflation problem is supply side, which technically means that there is only so much that monetary policy can do,” he added.

The Monetary Board last month kept its policy rate steady at a near 17-year high of 6.5% for a fourth straight meeting after it raised benchmark interest rates by a cumulative 450 basis points (bps) from May 2022 to October 2023 to help tame elevated inflation.

BSP Governor Eli M. Remolona, Jr. earlier said that their current policy rate is “already tight” and that they would only consider further rate hikes if inflation expectations are de-anchored.

Jonathan L. Ravelas, senior adviser at professional service firm Reyes Tacandong & Co., said further rate increases would “depend on how inflation unfolds in the coming months, along with climate concerns and geopolitical noise.”

Headline inflation averaged 3.3% in the first quarter, below the BSP’s 3.8% forecast and within its 2-4% target for the year.

A BusinessWorld poll of 16 analysts yielded a median estimate of 4.1% for April inflation, within the BSP’s 3.5-4.3% forecast for the month.

If realized, this would overshoot the central bank’s target range for the first time since the 4.1% print in November 2023.

The Philippine Statistics Authority will release April inflation data on May 7, Tuesday.

The BSP earlier said that inflation may temporarily go above their 2-4% target over the next two quarters due to base effects and the impact if the El Niño dry spell on the prices of key commodities like rice.

GlobalSource Partners said in a report that inflation may have quickened further in April amid high food prices due to the agricultural damage from the El Niño weather event.

“We therefore estimate that the April inflation could skew closer to 4%. The actual core inflation that we will be seeing next week will tell us the extent of monetary policy bite,” Diwa C. Guinigundo, country analyst for the Philippines of GlobalSource Partners, said.

“Given the unprecedented high temperatures, based on official government reports, huge agricultural damage is expected. Water shortage is serious in many parts of the country with rivers and other bodies of water drying up. For this reason, food items which comprise more than 35% of the consumer basket could drive the April inflation much higher.”

Agricultural damage due to El Niño is now valued at P5.9 billion, according to the latest bulletin by the Department of Agriculture.

Rice was the most affected commodity and accounted for 53.2% of the damage, equivalent to P3.14 billion. This was followed by corn, which recorded P1.76 billion in damage or 29.8% of total losses.

“Rice and corn alone account for over 10% of the basket. With delayed imports, it is difficult to sustain food security and stable prices. Moreover, power failure in a number of hydroelectric plants could restrain manufacturing and other business activities,” Mr. Guinigundo added.

China Bank Research said inflation may continue to surpass the BSP’s target band in the coming months.

“Looking ahead, unfavorable base effects and persistent price pressures may drive inflation above the BSP’s target from May to July, unless we see significant price reversals,” it said in an e-mail.

“Whether the economy can withstand another hike depends on the severity and persistence of the inflation increase. Again, the BSP will likely weigh the need to control inflation against the risk of slowing economic growth,” Mr. Roces said.

The government targets gross domestic product (GDP) growth of 6-7% this year.

The Philippine economy likely expanded by 5.9% in the first quarter, according to a BusinessWorld poll of 20 analysts last week.

If realized, this would be faster than the 5.5% growth recorded in the fourth quarter but slower than the 6.4% in the first quarter of 2023.

Finance Secretary Ralph G. Recto earlier said GDP likely expanded by 5.8-6.3% last quarter.

With inflation remaining elevated, analysts expect the BSP to extend its policy pause.

“With risks still leaning to the upside, the BSP will likely hold its policy rate at 6.5% at their May 16 meeting,” China Bank Research said.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the BSP will likely only cut rates once the US Federal Reserve begins its own easing cycle.

“We maintain our expectation that the BSP will be cutting rates as soon as the Fed, and with the Fed likely delaying and downscaling the size of easing, we expect BSP to do the same,” he said.

Mr. Remolona earlier said the central bank may reduce rates by the fourth quarter, though this could be delayed to the first quarter of 2025 if inflation risks persist.

THE NATIONAL Government’s (NG) debt service bill nearly quadrupled in March amid a surge in amortization payments, data from the Bureau of the Treasury (BTr) showed.

BTr data showed that debt payments surged by 275.3% to P533.523 billion in March from P142.171 billion in the same period a year ago.

The bulk or 86.7% of the debt service bill for the month was composed of amortization payments.

In March, principal payments soared by 469.2% to P462.579 billion from P81.273 billion in the same month in 2023.

Broken down, amortization on domestic debt climbed by 521.5% to P455.91 billion in March from P73.361 billion a year earlier.

Principal payments on external debt declined by 15.7% to P6.669 billion from P7.912 billion.

On the other hand, interest payments rose by 16.5% to P70.944 billion in March from P60.898 billion a year prior.

Interest paid on domestic debt stood at P55.705 billion, higher by 19% from P46.754 billion a year ago.

Interest paid to foreign creditors went up by 7.7% to P15.239 billion from P14.144 billion.

For the first quarter, the NG’s debt service bill jumped by 74.3% to P986.036 billion from P565.716 billion in the comparable year-ago period.

Amortization payments shot up by 87.2% to P793.044 billion in the first three months from P423.739 billion a year ago. Principal payments on domestic debt stood at P699.673 billion, while those on external debt amounted to P93.371 billion.

Meanwhile, interest payments likewise increased by 35.9% to P192.992 billion in the first three months from P141.977 billion a year prior. Broken down, interest paid on domestic debt reached P138.878 billion, while interest payments for external debt stood at P54.114 billion.

Higher debt servicing in March was primarily due to the large maturities of previously issued retail Treasury bonds (RTBs) worth about P700 billion early that month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

Still, these payments were partly reduced by the record RTB issuance in February, which included a bond exchange program involving holders of papers set to mature in March meant to lengthen maturities of the government’s obligations, Mr. Ricafort said.

The government raised a record P584.86 billion from its February offering of five-year retail bonds, surpassing its P400-billion target.

The BTr initially borrowed P212.719 billion through the RTBs during the rate-setting auction for the papers.

The government raised an additional P372.14 billion during the nine-day public offer period. Of this amount, the government raised P243.45 billion from the bond switch program, while P128.69 billion came from new money.

The five-year RTBs fetched a coupon rate of 6.25%, 12.5 basis points (bps) higher than the 6.125% quoted for the five-and-a-half-year RTBs offered in February 2023.

“Higher debt servicing was also due to higher interest rates from a year ago that increased the NG’s interest rate payments,” Mr. Ricafort added.

The Bangko Sentral ng Pilipinas (BSP) raised borrowing costs by 450 bps from May 2022 to October 2023, bringing its policy rate to a near 17-year high of 6.5%.

The Monetary Board will hold its next policy review on May 16.

Mr. Ricafort said a weaker peso versus a year ago also increased the peso value of foreign currency or dollar-denominated debt payments.

Based on BSP data, the peso-dollar exchange rate averaged P55.849 in March, depreciating from the P54.796 average in the same month in 2023.

“For the coming months, possible US Federal Reserve and local policy rate cuts could help mitigate debt servicing costs of the NG,” Mr. Ricafort said.

BSP Governor Eli M. Remolona, Jr. earlier said the central bank may begin cutting rates by the fourth quarter. However, if inflation risks persist, the start of its easing cycle could be pushed back to the first quarter of 2025.

Meanwhile, Fed Chair Jerome H. Powell last week said that after starting 2024 with three months of faster-than-expected price increases, it “will take longer than previously expected” for policy makers to become comfortable that inflation will resume the decline towards 2% that had cheered them through much of last year, Reuters reported.

That steady progress has stalled for now, and while Mr. Powell said rate increases remained unlikely, he set the stage for a potentially extended hold of the benchmark policy rate in the 5.25%-5.5% range that has been in place since July.

US central bankers still believe the current policy rate is putting enough pressure on economic activity to bring inflation under control, Mr. Powell said, and they would be content to wait as long as needed for that to become apparent — even if inflation is simply “moving sideways” in the meantime.

The Fed’s preferred inflation measure — the personal consumption expenditures price index — increased at a 2.7% annual rate in March, an acceleration from the prior month. — Luisa Maria Jacinta C. Jocson with Reuters