Philippine CPI quickens in July, rate cut 'little less likely'

MANILA :The Philippine central bank could hold off easing interest rates next week after annual inflation in July accelerated to a "worse-than-expected" level, its governor said on Tuesday.

Annual inflation rose 4.4 per cent in July on elevated food and utility costs, statistics agency data showed, breaching the 4.1 per cent forecast in a Reuters poll and higher than June's 3.7 per cent print.

Inflation averaged 3.7 per cent in the first seven months, near the top end of the central bank's 2.0 per cent to 4.0 per cent target this year.

Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona told reporters on Tuesday a rate cut in August would be "a little bit less likely since inflation is elevated".

"It's still worse than expected, but not that bad," Remolona said.

Monetary authorities will meet on Aug. 15 to review its policy rate, which had been kept steady at 6.5 per cent at the last six meetings. Market watchers had interpreted remarks Remolona made before the inflation data as signalling a likely cut.

The central bank separately said in a statement that a "general downtrend" in inflation could be expected beginning this month due to a government order lowering tariffs on rice.

With inflation projected to ease in the coming months, Metropolitan Bank and Trust Co economist Nicholas Mapa said on X that the central bank "could still likely opt to ease at their upcoming meetings to support growth".

Core inflation, which strips out volatile food and oil prices, eased to 2.9 per cent in July from 3.1 per cent in June, the data showed.

A rate cut this month would be the first since November 2020 and should bode well for the economy, which a Reuters poll showed likely expanded at a faster clip of 6.2 per cent in the second quarter, stronger than the previous quarter's 5.7 per cent.

The Philippines is set to announce economic growth data for the second quarter on Thursday.

"If growth is unexpectedly weak, and it looks like projections of inflation and inflation expectations suggest lower inflation going forward, we can cut," Remolona said.

Remolona said the central bank is "always open" to an off-cycle rate cut.

Separate data on Tuesday showed exports shrank 17.3 per cent in June from a year earlier, while imports contracted 7.5 per cent. That led to a trade deficit of $4.3 billion for June, narrower than the previous month's revised deficit of $4.7 billion.