Even as headline inflation surprised to the downside in June and stayed within the central bank's two to four percent target, it is still premature to proclaim a definitive victory over inflation, the top official of the Bangko Sentral ng Pilipinas (BSP) said.

'This is a cause for reassurance because (inflation) seems to be going in the direction we expected. So it's reassuring,' BSP Governor Eli Remolona Jr. said. 'But we need a few more numbers. So it's not yet time to declare victory.'

His statement comes after inflation slowed to a four-month low of 3.7 percent in June from 3.9 percent in May, which was 'slightly better than expected.'

Remolona said the BSP's Monetary Board will wait for the July inflation data, along with other data, before considering its next move at its August meeting.

If inflation picks up in July and breaches the two to four percent target for the year due to base effects, he said the Monetary Board would still consider policy easing in August.

'We already know what the base effects will be,' he said. 'We do expect (inflation) to breach in July. So if it doesn't breach, then it's better than expected.'

July inflation data will be out on Aug. 6. This will be a major factor in the analysis of the Monetary Board as it decides whether to keep or cut policy rates on Aug. 15, its fifth policy review for the year.

On the other hand, the BSP chief said he still sees a total of 50 basis points worth of rate cuts this year as 75 basis points may be 'aggressive' for an economy experiencing strong growth.

The second-quarter data on the economy's gross domestic product (GDP) will be released on Aug. 8.

The BSP has been on pause for six straight meetings, keeping the key interest rate at 6.5 percent - the highest in 17 years. This was after the Monetary Board hiked borrowing costs by 450 basis points from May 2022 to October 2023.

In a commentary, BPI lead economist Jun Neri said the BSP would likely start cutting interest rates in August with the inflation outlook now improving.

But monetary policy easing in August may lead to peso depreciation against the dollar as the interest rate differential between the US and the Philippine will narrow further.

'However, it seems this is a trade-off that the BSP is willing to tolerate for now. The pass-through from the exchange rate to inflation appears to be manageable based on the analysis of the central bank, and will only become a concern if the inflation target is at risk again,' Neri said.

Still, the currency depreciation will likely prevent the central bank from cutting interest rates aggressively, especially given the country's current account deficit and global economic uncertainty.

'We only expect two rate cuts this year from 6.5 percent to six percent,' he said.

Meanwhile, lower inflation also gives the BSP room to cut the reserve requirement ratio.

'Over the years, the BSP has refined its market-based monetary tools, which financial institutions actively use in managing their liquidity,' Neri said.

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