(Bloomberg) -- The Philippine central bank is expected to keep its benchmark interest rate steady for a fourth straight meeting on Monday as rice inflation bolted to a fresh 15-year high while the peso slumped to a five-month low.

Bangko Sentral ng Pilipinas will maintain its target rate at 6.5%, according to all 19 economists in a Bloomberg survey. The decision, which was delayed from an original schedule of April 4, will follow data that showed inflation accelerated for a second consecutive month as price gains of the nation’s staple grain soared anew. At the same time, the peso has faced a fresh bout of weakness, along with other regional currencies.

While policymakers aren’t expected to resume tightening, they may push back against any imminent rate cuts in favor of waiting for a more convincing decline in inflation. The BSP’s latest price outlook became less optimistic, anticipating that inflation may be above the 2%-4% target through the July-September period from an earlier forecast of just a second-quarter breach. 

There’s been growing wariness among central banks that inflation may continue to be stubborn this year, as the El Nino drought hits farm output and geopolitical tensions push up oil prices. US policymakers have also signaled they are willing to wait for more evidence of decelerating inflation before acting, spurring weakness in emerging currencies that could stoke import costs. The Philippines imports almost all its fuel needs and is among the world’s biggest buyers of rice.

The Philippine central bank will weigh domestic factors like price pressures and economic growth prospects as it also watches the Federal Reserve’s moves, said Shreya Sodhani, regional economist at Barclays Plc, adding that monetary easing is not likely to happen this quarter. 

Governor Eli Remolona last month said that although it’s unlikely that the BSP will tighten some more, he can’t say that it will ease soon. 

Here’s what to watch out for at the briefing in Manila at 3 p.m.:

Inflation, Peso

Continued increases in prices of rice and meat along with higher domestic oil prices and electricity rates are the key sources of price pressures. El Nino-induced drought could crimp harvests and further boost food costs.

“Risk-adjusted inflation forecast is quite important as the BSP is now focusing on that, and the measure needs to remain below 4% before cuts can start,” Sodhani said. “I would also start to pay attention to the bank’s mention of growth,” she said. 

The Barclays economist predicts that the Philippines could start cutting the policy rate next quarter while Australia & New Zealand Banking Group Ltd. said its base case is for a total half-point reduction in the fourth quarter. 

What Bloomberg Economics Says...

Since its last meeting in February, the peso has remained vulnerable to selling pressure. Cutting rates before the Fed would add to downward pressure on the currency. What’s more, inflation is already poised to breach the central bank’s target because of higher food costs. The BSP is wary of higher rice prices lifting inflation expectations for a broader basket of goods.

—Tamara Mast Henderson, Asean economist

For the full note, click here

The peso has fallen about 0.5% this month against the dollar, among the worst performers in the region. 

Growth Outlook

The Philippines last week trimmed the economic growth forecasts for this year and next while widening fiscal deficit estimates to support higher spending. 

Even with the downward revisions in growth, President Ferdinand Marcos Jr.’s team expects the Philippines to remain among the fastest-growing economies in the region, giving them confidence to focus on the inflation battle. 

“Inflation is still our biggest problem,” Marcos told Bloomberg Television last month. “We’re not yet there,” he said when asked whether he sees room to cut borrowing costs that are the highest since May 2007.

--With assistance from Tomoko Sato.

©2024 Bloomberg L.P.