By Luisa Maria Jacinta C. Jocson, A reporter
BANGKO SENTRAL ng Pilipinas (BSP) will probably arguecontinues its tapering cycle with another 25-basis-point (bp) rate cut meeting on Wednesday, analysts said.
A BusinessWorld a survey conducted last week showed that 16 out of 19 analysts expect the Monetary Board to cut rates by 25 bps at its policy review meeting on Oct. 16.
If possible, this would bring the target repurchase rate to 6% from 6.25%.
On the other hand, two analysts expect the central bank to cut by 50 bps, while one analyst sees the BSP keeping policy rates unchanged on Wednesday.
The Monetary Board began its tapering cycle with a 25-bp rate cut in August, i fit lowered borrowing costs for the first time in nearly four years.
“I expect the Board to reduce again (this) week, I added 25 bps. This is especially the case after September’s very soft print, which slightly missed expectations, including the BSP’s own range of forecasts,” Pantheon Macroeconomics Chief Economist Miguel Chanco said in an email.
Mr. Chanco said the decision would be “easy” as the BSP “has a lot of room to continue normalizing policy without risking overstepping, given how fast and to what extentfthe relationship has fallen apart in recent months.”
Patrick M. Ella, an economist at Sun Life Investment Management and Trust Corp., said the decline was slowflation made a “strong case” for the BSP to cut rates.
Inflation eased sharply to 1.9% in September from 3.3% in August. This was also the slowest print in four years or from a 1.6% clip in May 2020.
“The best, infthe relief fell on the heavy food basket behind the low tariffs rice. This gives the BSP assurance that inflation is back in the bottle, and will continue to do well in the coming months,” said Sarah Tan, an economist at Moody’s Analytics.
Eating insidefit fell to 1.4% in September from 4.2% in August and 10% last year.
Nomura’s Head of Global Markets Research, ASEAN Economist, Euben Paracuelles, said that the reduction in inflation will allow the BSP to reduce some of its monetary policy parameters in a moderate manner.
“The time is lower than what was expected in Septemberfsupports the continuation of monetary easing,” added Philippine National Bank economist Alvin Joseph A. Arogo.
Maybank Investment Banking Group chief economist, Zamros Bin Dzulkafli, said markets expect inflation to continue within the next few months, due to the tax.ff reducing rice imports and India’s decision to lift the export ban on non-basmati white rice.
“The subject has enteredfvaluation is expected to remain within or below target in the coming months due to positive fundamentals efresults and a better view of food supply especially rice,” said Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr.
Of fin the first nine months of the year, the titlefthe average reached 3.4%. This was also the BSP’s full-year forecast.
BSP Governor Eli M. Remolona, Jr. earlier said infit is now on a “flexible path” that allows it to transition to a less restrictive policy environment.
“With the recent CPI and possibly lack of demand contributing to this absurdityfrates, we believe the BSP has room to cut by another 25 bps at the next Monetary Board meeting,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc.,.
“We believe that we have our consumer price index (CPI) in view of the decline in food prices, and the reduction of the effects of the increase in electricity rates, to reduce inflation from imports due to the recent change in oil prices,” he added.
LITTLE DONE
Although the central bank will continue to cut rates, analysts say this will likely be done gradually.
“However, the BSP may choose to cut back a bit, keeping in mind the impact of political tensions in the Middle Eastfperspective, the recent devaluation of the peso against the US dollar, and the Fed’s rate hikes dampen expectations. Additionally, BSP Governor Remolona has hinted at favoring gradual rate cuts,” China Bank Research said.
The Monetary Board may cut the 25-bp rate over 50 bps, Mr. Remolona earlier, as the latter will be more appropriate.eat “hard mode”.
Mr. Neri said the BSP may also “opt for a 25-bp rate cut instead of an aggressive 50-bp cut.”
“Even though inflation dropped to 1.9% in September, there are several factors that warrant a cautious approach,” said Mr. Neri.
Chinabank Research also noted the risk in infworld view, accounting for the rise in global oil prices.
“Therefore, the BSP may decide to adjourn next week’s meeting to reduce itfThe pressures are pressing, especially as higher oil prices can lead to second-order effects,” Chinabank Research said.
“The risks we see here are oil supply shocks (which is a form of geopolitical explosion) and food supply disruptions (like weather) which will disrupt the pace of BSP cuts,” added Mr. Ella.
Mr. Asuncion said they reviewed the infgrowth forecast will reach 3.2% this year and 2.5% next year.
“Warnings in this bad gamefthe mood is dangerous for the event in the Middle East accompanied by the escalation of conflicts between Israel and Iran that may maintain the volatility of oil prices and revive the strength of the US dollar,” he added.
Mr. Neri also mentioned other risks that could lead to supply disruptions such as a La Niña weather event spike in cases of African Swine Fever.
A recent report from the state weather agency indicated that there is a 71% chance of La Niña forming in the September-November season and likely to continue until ffirst quarter next year.
“The gradual lowering of the policy rate will help the economy to withstand the impact of these risks if they happen,” said Mr. Neri.
“Among the factors behind this possible decision are Philippine inflation being well within target, strong gross domestic product (GDP) growth, and expectations that the Fed will gradually cut rates by 25 bps next month,” Security Bank Vice President and Head of Research. Angelo B. Taningco said.
Ms Tan said the 50-bp rate cut by the Fed provides room for the BSP to push policy rates lower.
Recent economic growth also paves the way for moderate rate cuts.
“Recent economic activity data and emerging growth prospects also suggest that cutbacks are unnecessary,” Mr. Neri.
Philippine GDP grew by 6.3% in the second quarter, the fastest fquarters ive or from 6.4% to ffirst quarter of 2023.
“Election-related spending, better weather and slower inflation in the coming months are likely to underline strong growth pressures, reducing the need for major rate cuts,” Mr. Neri.
The peso
Meanwhile, Chinabank Research also noted that the BSP will consider the peso’s recent devaluation.
“This month, the peso fell back to P57 against the US dollar as markets shrugged off expectations of another jumbo 50-bp cut by the Fed this year after a strong jobs report and asflict in the Middle East is still at risk of continuing to grow,” said the newspaper.
The domestic currency closed at P57.205 per dollar on Friday, up 15.5 centavos from its P57.36. fon Thursday. However, week on week, the peso sank by 91 centavos from its P56.295. fon October 4.
“Many Fed officials, including Chairman Powell, have voiced their support for a gradual pace of easing following their initial 50-bp rate cut in September,” Chinabank Research said.
“A 25-bp rate cut by the BSP next week will keep interest rates lowfis tight between the BSP and the Fed’s policy rate at 100 bps, thus exerting downward pressure on the peso,” it added.
Meanwhile, Oikonomia Advisory & Research, Inc. said they expect a 50-bp drop this week as a “big dropflation (gives) the BSP a long way to reduce prices. “
Chief Economist Rizal Commercial Banking Corp. Michael L. Ricafort also sees a 50-bp cut to match the Fed’s recent rate cut.
“By comparison all Fed rate cuts are in lockstep, increasing monetary easing and supporting economic growth,” he said in an email.
On the other hand, Jonathan L. Ravelas, senior consultant at professional services firm Reyes Tacandong & Co., said the BSP may keep rates steady and opt for a 25 bps rate cut later in December, citing inflation risks such as the rate cut of the latest requirement, the election. -related spending, and higher fuel prices.
Mr. Ravelas said simplification should be done “slowly but surely” again fless likely to be in Octoberfbreaking the 3% rate.
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