BSP could start easing in the fourth quarter

THE BANGKO SENTRAL ng Pilipinas (BSP) will likely start easing in the fourth quarterFexpectation will be Fdefinitively completed within the target, according to Metropolitan Bank & Trust Co. (Metrobank).

“In line with BSP guidance, we forecast that domestic headline inflation will peak in July, which in turn would not be noticeable until early August,” Metrobank’s Research and Market Strategy Department said in a note.

The central bank said this earlierFInflation could temporarily accelerate above the 2-4% target from May to July due to base eFfects. However, insideFThe expectation is that expectations will return to the target level after July.

“This supports our view that the BSP will begin its easing cycle in the fourth quarter, rather than the third quarter whenFExpectations have remained well within the BSP’s 2-4% range,” Metrobank said.

The next Monetary Council meeting is on June 27, but BSP Governor Eli M. Remolona Jr. has indicated that policy easing could begin as early as August.

The Monetary Board’s only meeting in the third quarter is scheduled for August 15, followed by two meetings in the fourth quarter (October 17 and December 19).

Metrobank said the central bank is likely to implement sufficiently restrictive policies attitude as upside risks for inFto stay.

It cited risks such as “still high food prices and increased geopolitical risks that could lead to new supply shocks.”

InFAccording to the average estimate in a, inflation is likely to have accelerated to 4% in May for the fourth month in a row Business poll among 16 analysts.

The BSP gave an inflation forecast for May of 3.7-4.5%. The inflation figures will be announced on June 5.

“We also continue to see the BSP lagging the US Federal Reserve easing cycle, where we expect Ffirst policy rate cut at the September Federal Open Market Committee (FOMC) meeting, which should then support the peso,” Metrobank said.

Mr Remolona previously said that while the BSP is monitoring the Fed’s actions, it does not have to wait for the US central bank to cut interest rates.

On May 16, the Monetary Board held its key policy rate steady at a 17-year high of 6.5%. This was the fifth straight meeting where the BSP held firm, as it implemented an off-cycle rate hike of 25 basis points (bps) in October.

From May 2022 to October 2023, the central bank increased borrowing costs by 450 basis points.

Meanwhile, Metrobank said it expects the peso to continue rising.

“We expect the peso to be further supported by a smaller current account balance, which in turn will be driven by improving trade deficits and recovery in travel exports, accompanied by an expected increase in business process outsourcing revenues (BPO) and remittances from overseas Filipino workers (OFW) in the fourth quarter,” the report said.

The BSP expects a current account deficit of $6.1 billion by the end of 2024, equivalent to -1.3% of gross domestic product (GDP).

Metrobank said the peso will reach P56.10 per dollar by the end of the year.

In May, the peso reached the level of P58 per dollar for the first time in more than 18 months.

The BSP has said it will continue to monitor the foreign exchange market and participate as necessary to “flatten excessive volatility and restore order during periods of stress.”

On Monday, the peso closed at P58.68 per dollar, down 17 centavos from Friday’s P58.51. This was the worst Fwill end in almost 19 months, or since the close of P58.80 per dollar on November 3, 2022. Luisa Maria Jacinta C. Jocson