By Luisa Maria Jacinta C. Jocson, A reporter
A long-awaited rate cut by the US Federal Reserve paves the way for the Bangko Sentral ng Pilipinas (BSP) to continue its easing policy, analysts said.
“The new US monetary stance, which is now widely expected, could actually give the BSP more room to ease, expand domestic currency and stimulate growth,” said Diwa C. Guinigundo, Philippines country analyst for GlobalSource Partners, in a statement. Viber message.
The US central bank on Wednesday kicked off an expected round of interest rate cuts with a larger-than-normal rate cut that Federal Reserve Chairman Jerome H. Powell said was intended to show policymakers’ commitment to keeping unemployment low. to measure now that infhas calmed down, reports Reuters.
“We made a good strong start, and I’m very happy that we did,” said Mr. Powell at a press conference after the Fed, noting that its growing confidence that the fight against high inflation is over, lowered its benchmark rate. 50 basis points (bps) to a range of 4.75%-5%. “The logic of this from an economic and risk management perspective was clear.”
In addition to approving a half-percentage point cut on Wednesday, Fed policymakers estimated interest rates would drop another half-percentage point by the end of this year, a full point next year, and half a percentage point in 2026.
“With the Fed’s rate cut by 50 bps, (the BSP) has more than enough room to cut the reverse repurchase target (RRP) by 25 bps in October as inflation in September is likely to drop to -2.3%,” Metropolitan Bank & Trust Co. (Metrobank) Chief Economist Nicholas Antonio T. Mapa said in X.
Last month, the Monetary Board cut the RRP rate by 25 bps to 6.25% from a 17-year high of 6.5%. It was the first time the BSP cut rates in almost four years.
BSP Governor Eli M. Remolona, Jr. he said the central bank could deliver another 25-bp cut in the fourth quarter. The remaining meetings of the Board of Finance this year are scheduled for Oct. 17 and Dec. 19.
Patrick M. Ella, an economist at Sun Life Investment Management and Trust Corp., said the BSP could cut by at least 25 bps at its meeting next month.
“I expect another 25-bp cut in the next meeting (at least) because if the Fed hikes another 50 bps, the BSP should match the size of the cut to manage the expected strength in Asian currencies due to the Fed’s cut. cycle,” he said via e-mail.
Mr. Ella said that if the Fed continues the pace of 50-bp cuts, the BSP may need to follow suit.
The Fed has kept its policy rate in the 5.25%-5.5% range since last July, when it ended an 18-month rate-raising campaign aimed at controlling inflation, which rises in 2022 to 40 years. , Reuters reported.
Futures traders estimated the rate moved more easily than the Fed expected, with the policy rate now expected to be in the 4%-4.25% range by the end of this year.
Mr. Mapa said “the door is wide open” for the BSP to implement further policy expansion in October and a rate cut (RRR) in the near term.
He noted that if the BSP will keep rates tight in October, the Fed will still have two meetings between the December meeting of the Monetary Board. “It makes perfect sense for the BSP to cut the front load,” he added.
The last two meetings of the Federal Open Market Committee (FOMC) of this year are scheduled for Nov. 6-7 and Dec. 17-18.
Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. he said the BSP has room to cut the rate twice this year, but is predicting just one rate cut.
“Many job indicators remain strong even if policy rates are close to 6% and the Monetary Board needs to reduce the RRR in a meaningful way and build its gross international reserve (GIR) buffer while it still has room to do so,” he said.
“Related to GIR collection, the BSP will probably be as aggressive as the FOMC in cutting if our GIR is brought closer to the external debt of the Philippine economy,” he added.
External debt increased by 10.4% from $130.182 billion at the end of June. last year.
Total dollar reserves rose 0.18% to $106.92 billion at the end of August from $106.74 billion at the end of July. This was the highest level of dollar reserves in 29 months or since $107.3 billion in March 2022.
“The BSP has not been able to build its GIR significantly since the rate hike cycle in mid-2022. The start of the US reduction cycle opens a window as long as we have a comfortable difference between the policy levels of the Philippines and the US,” said Mr. Neri.
He also noted that the latest macroeconomic data showed “strong economic activity,” citing subdued inflation, strong employment figures and double-digit credit growth.
Headline inflation eased to 3.3% in August from a nine-month high of 4.4% in July.
“The current Monetary Board does not seem to be in a hurry to cut rates as it also needs to give way to a planned ‘major reduction’ in our RRR and will need to rebuild a large GIR buffer given the rapid expansion of the country’s foreign exchange. debt,” added Mr. Neri.
Mr. Guinigundo also noted the risk of further rate cuts and RRR cuts.
“The only challenge I foresee is the possibility of a resurgence of upward inflationary pressures, especially if the RRR is lowered by a few hundred basis points,” he added.
Mr. Remolona this week said that the BSP plans “very much” to lower the reserve requirement this year.
In June 2023, the central bank lowered the rate on central banks and non-bank financial institutions with similar banking activities by 250 bps to 9.5%.
Earlier the BSP official said that the RRR should be reduced to 5%. – with Reuters
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