MNI BSP Preview- May 2023: Likely On Hold

EXECUTIVE SUMMARY

• The majority of forecasters expect the BSP to be on hold at tomorrow’s policy meeting, which is also out bias. Recent commentary from Philippines officials has certainly hinted at a pause. Earlier this week BSP Governor Medalla stated that the central bank may pause this week. He added that the recent softer m/m momentum in CPI was welcome and could drive a potential on hold outcome. Finance Secretary Diokno, who sits on the BSP board, stated he will be voting for an on-hold outcome this week.
• Officials seem confident that inflation will continue to trend down from here. Headline pressures have certainly moved lower, but core prices are only just off recent multi-decade highs. It also remains well above the average for the rest of the region. Outside of BSP and other official rhetoric, looking at the inflation picture in isolation may warrant tighter policy settings, particularly with growth still holding up well.
• Sounding too dovish may also boost inflation expectations. How USD/PHP trends can also influence imported inflation outcomes, while the Philippines trade balance remains comfortably in deficit. In this sense the central bank may leave the door ajar to tighten further in light of these risks (assuming a pause is delivered tomorrow).
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BSP Preview - May 2023.pdf