By Luisa Maria Jacinta C. Jocson, A reporter
THE DEPARTMENT is wide open for the Bangko Sentral ng Pilipinas (BSP) to continue its cycle of rate cuts albeit at a slower pace, analysts said.
“As luck starts to work, the door for the BSP to accelerate its easing cycle is wide open,” HSBC’s ASEAN (Association of Southeast Asian Nations) economist Aris D. Dacanay said in a report.
The Monetary Board cut rates for the second consecutive meeting on Wednesday with a 25-basis-point (bp) cut, bringing the key rate to 6% from 6.25%.
The BSP has now reduced borrowing costs by a total of 50 bps since it began its easing cycle in August.
“The BSP may continue to cut interest rates in the coming months, although a reduction in interest rates is unlikely due to domestic and foreign considerations,” said Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. in the report.
BSP Governor Eli M. Remolona, Jr. he said they prefer to take “baby steps” in adjusting policy rates, referring to the quarterly reduction. He noted that the 50-bp excision may be very aggressive and may only occur in severe cases.
Mr. Remolona also indicated that it is possible to reduce bps by 100 in 2025. However, he said that price reductions will not be done at all policy meetings.
“With inflation expected to remain at the target level during the policy period and economic growth expected to remain strong, we expect the BSP to continue its gradual easing,” said Citi Philippines economist Nalin Chutchotitham.
RATE CUT IN DECEMBER
Analysts expect the BSP to deliver another 25-bp rate cut in December, in line with the central bank’s signals.
“Given private consumption which remains fragile and developingf“We think the BSP will cut its policy rate by 25 bps to 5.75% at its meeting in December 2024,” ANZ Research said in a report.
ING Bank also sees a 25-bp cut in December amid expectations that are within targetflation.
“We expect the CPI (consumer price index) to come infincreased to 2.9%, below the midpoint of the target band in 2024. The Philippines should benefit from improved global food supply and lower rice prices following India’s lifting of its ban on rice exports,” it said.
Mr. Dacanay expects the Monetary Board (MB) to cut by 25 bps in its next four policy meetings.
“We maintain our policy rate forecasts and expect the BSP to cut its policy rate again by 25 bps at the last rate setting meeting in 2024. We then expect the BSP to reduce its policy rate by 25 bps per zone fThe first three meetings of the Finance Board in 2025,” he said.
“This also means that the tapering cycle will end in the second quarter of 2025 with a policy rate of 5% – a higher rate than pre-pandemic levels and a higher rate than what the BSP said (on Wednesday). This is because we expect growth in 2025 to be stronger when rates of inferior rice which greatly increases domestic consumption.”
Ms Chutchotitham also expects a 25-bp cut at the MB meeting in December, as well as meetings in February, May and August next year. This will bring the policy rate to 5% by the end of 2025.
“We maintain our expectation of a further 50-bp reduction in 2026, to 4.5%. This will bring the policy rate slightly closer (but still very high) to the long-term pre-COVID policy rate,” he said.
“With the economy in a ‘Goldilocks’ state, the BSP has options to remain flexible in its easing decisions, which may also include consideration of future Fed decisions and the impact on the foreign exchange market,” he added.
DANGERS
Mr. BPI’s Neri also sees the policy rate ending at 5.75% at the end of 2024, but warned of risks that could change this view.
“However, this idea can appear depending on what happens between now and then, especially abroad. Recent developments have shown how economic data can surprise markets and quickly lead to a change in sentiment,” he said.
Mr. Neri cited risks such as the possibility of a temporary suspension by the US Federal Reserve in December, the rise in global oil prices and the depreciation of the peso.
He said inflation must be controlled in the next 12 months but warned of potential disruptions.
“However, the risk is still there, especially if there is a possibility of La Niña and an increase in African Swine Fever cases…fRelationships in the Philippines are always sensitive to weather conditions, and one extreme weather event could cause a spike. On the other hand, stable commodity prices during the Chinese economic downturn may offix these accidents,” he said.
Both Citi and BPI are expecting a major headlinefThe figure will reach 3.2% this year, before falling to 2.8% next year.
A BSP official on Wednesday said the balance of risks in thefthe outlook for next year until 2026 has changed to higher.
The BSP cut its core inflation forecast to 3.1% (from 3.4%) in 2024 but raised the forecast to 3.2% (from 3.1%) in 2025 and 3.4% (from to 3.2%) in 2026.
Mr. Neri also warned the BSP to calm down as the external environment is “not as strong as before.”
“(This) makes the peso less resistant to external risks and developments, which may lead to domestic inflation… In addition, the outlook for inflation can change quickly given the current global situation and possible internal asset shocks. A cautious approach to devaluation may be necessary to contain these risks and ensure market stability.”
Mr. Neri again fdelayed the possibility of a stop, albeit small, if the peso continues to come under pressure.
Source link
