HSBC Sees Risks BSP Easing Cycle Delayed Post Yesterday's CPI Beat

HSBC: "We do expect headline CPI to climb even further and potentially breach the BSP's 2-4% target band some time in 2Q 2024 due to base effects alone (mostly under transport). Once these unfavourable base effects fade, we expect headline CPI to immediately ease back to within the BSP's target band by 3Q 2024. But despite the wide expectation of base effects, 2Q 2024 will likely still be a sensitive period. Market jitters may add up as inflation nears the upper-bound target of 4.0%, more so with risks tilted to the upside as authorities mull a potential PHP100 across-the-board wage hike (Philippine Star, 20 February 2024).

That said, the February CPI figure poses an upside risk to our baseline forecast of the BSP beginning its easing cycle at the same time as the Fed in June. Yes, today's print was only one data point. But if inflation surprises to the upside again or if risks to inflation materialize during the sensitive period of 2Q 2024, then there is a risk that the BSP will instead cut after the Fed, keeping the BSP rate at 6.50% for a longer period than we expect. Supporting this view is the fact that growth isn't providing any pressure on the BSP to rush its easing cycle with the Philippines being the fastest growing economy in ASEAN for 2023."