BSP has a ‘slower’ easing cycle

THE BANGKO SENTRAL ng Pilipinas (BSP) could slow its easing cycle due to lingering risks to the economy the inflation outlook, the pesos depreciation and an aggressive US Federal Reserve, analysts said.

“We expect the BSP to start its austerity cycle only after the Fed (i.e. in October), and that is when we also expect inflation to be more anchored within the BSP 2-4% target,” Nomura Global Markets Research said in a report.

The Philippines was among the top countries facing “underlying inflationary pressures” in Asia, second only to Singapore, according to Nomura data.

Nomura expects the BSP to cut rates by 50 basis points (bps) this year and another 100 basis points in 2025.

The Monetary Board has only three policy review meetings left this year: August 15, October 17 and December 19.

Citi Philippines economist Nalin Chutchotham said there is a chance the BSP will see a “slower” easing cycle.

“In any case, we point out the risk of slower rate cuts, which will most likely depend on the speed of the rate cutFThe decline in the economy, the timing of the Fed’s rate cuts and the potential depreciation pressure on the peso,” she said in a commentary.

Fed offThe cials previously pointed to the possibility that interest rate cuts would not be postponed until December.

The peso has been trading at the P58 per dollar range since May, when it fell to this level for the first time since November 2022.

However, Citi still predicts that the BSP will start cutting rates in August, for a total of 75 basis points this year.

“We remain committed to our call for 25 bp rate cuts in August, October and December 2024, followed by 25 bp rate cuts in February, May and August 2025 as our base case,” she said.

Citi said weaker-than-expected growth will also pave the way for rate cuts.

“The negative output gap projection supports monetary easing. While growth has been resilient to date, gross domestic product (GDP) growth in the first quarter of 2024 was lower than market expectations at 5.7%,” Ms Chutchotham said.

The government is targeting growth of 6 to 7% this year.

Meanwhile, Diwa C. Guinigundo, the Philippines country analyst from GlobalSource Partners and former BSP deputy governor, said he sees only one rate cut by the BSP this year.

“One rate cut is therefore more likely as forward guidance has been quite affirmative so far,” he said in a brief note, although he did not specify the timing of the cut.

“A second reduction in November or December is, as usual, data-driven, both in terms of actual and projected estimatesFinterest rates in the next two years. The balance of risk would also be an important benchmark for the BSP,” he added.

Mr. Guinigundo also spoke in JuneFThe lation could breach the BSP’s 2-4% target against the backdrop of higher food prices the impact of the depreciation of the peso.

“Higher domestic production of basic goods such as grains and meat and timely imports in the event of a shortage would be key to sustainably stabilizing price pressures andFlat. Non-monetary measures are an important additional policy intervention,” he said.

InFInflation is likely to have reached 3.9% in June, based on the average estimate in a Business poll among 14 analysts conducted last week. This would be the seventh month in a rowFThis happened within the BSP’s 2-4% target. June inFThe publication will be released on Friday, July 5.

“Although difficult to determine, a proper calculation of the country’s output gap will also help ensure that early or further easing will not wipe out the economy.Fexpectation and add inflationary pressure to an otherwise manageable inflation scenario,” Mr Guinigundo said.

BSP Governor Eli M. Remolona, Jr. has said the central bank could start easing policy as early as August.

He indicated that the BSP could cut rates by a total of 50 basis points this year – a cut of 25 basis points in the third quarter and again in the fourth quarter. — Luisa Maria Jacinta C. Jocson