METROPOLITAN Bank & Trust Co. (Metrobank) expects the Bangko Sentral ng Pilipinas (BSP) to cut benchmark interest rates again next month, with inflation is seen to remain within target in the next two years.
“The market is currently pricing in four rate cuts from the US Federal Reserve and we believe we could see the BSP going ahead of the Fed and reducing policy rates at its October meeting. This would cement Remolona’s reputation as a front runner as BSP remains focused on supporting growth now that the inflation outlook remains favorable,” Metrobank Chief Economist Nicholas Antonio T. Mapa said in a note on Monday.
“We retain our 2+1 rate call (two cuts with a possibility of a third cut) for up to 75 bps (basis points) worth of rate cuts by the central bank,” he added.
The Monetary Board on Aug. 15 reduced its policy rate by 25 bps to 6.25% from a 17-year high of 6.5%, marking its first easing move in nearly four years.
Prior to the cut, the BSP kept its policy rate at an over 17-year high of 6.5% for six straight meetings following cumulative hikes worth 450 bps between May 2022 and October 2023 to rein in elevated inflation.
BSP Governor Eli M. Remolona, Jr. has said they could cut rates by another 25 bps within the year. The Monetary Board’s last two policy-setting meetings this year are on Oct. 17 and Dec. 19.
Meanwhile, the Federal Open Market Committee’s remaining reviews for the year are scheduled for Sept. 17-18, Nov. 6-7, and Dec. 17-18.
The US central bank is widely expected to begin its easing cycle at this month’s policy meeting, with markets pricing in a 25-bp cut at the review and 100 bps in reductions for this year. It has kept the federal funds target rate at the 5.25%-5.5% range following increases worth 525 bps from March 2022 to July 2023.
“Governor Remolona displayed central bank independence by forging ahead of the Fed last August given his expectations for domestic inflation amid a landscape of moderating Philippine growth,” Mr. Mapa said. “The central bank expects inflation to stay within target this year, next year, and the year after that, suggesting that the primary objective of price stability remains well in-hand.”
The BSP expects inflation to average 3.4% in 2024, 3.1% in 2025, and 3.2% in 2026 under its baseline scenario, within its 2-4% annual target.
Headline inflation slowed to a seven-month low of 3.3% in August from 4.4% in July and 5.3% in the same month last year. In the first eight months, the consumer price index stood at 3.6%.
“This indicates that the BSP is probably the central bank in the region with the most runway to reduce policy rates to more normal levels to help chase growth objectives. A healthy 150 bps of cumulative reduction over the next couple of months could help generate a takeoff for private investment and ensure a more sustainable course for growth,” he added.
Philippine gross domestic product expanded by 6.3% in the second quarter, bringing first-half growth to 6%.
To meet the lower end of the government’s 6-7% target for this year, the economy must expand by at least an average of 6% in the second half. — AMCS
