BSP signals possible interest rate cut in August

By means of Luisa Maria Jacinta C. Jocson, News reporter

THE BANGKO ng Pilipinas (BSP) stood stale for one Fif it is a direct meeting but indicated a “less aggressive” tone amid lower than expected inFlat.

This is because the central bank already sees the possibility of monetary easing in August.

The Monetary Board on Thursday left its target reverse repurchase rate unchanged at a 17-year high of 6.5%, as expected by 17 of 19 analysts in a Business poll from last week.

Interest rates on overnight deposits and credit facilityes were left behind unchanged 6% and 7% respectively.

“We are actually a little less aggressive than before, which means we could ease (or) cut rates by the third or fourth quarter of this year,” BSP Governor Eli M. Remolona, ​​Jr. said. said during a press conferenceFing.

Mr Remolona said they could reduce rates “possibly by August this year”.

At an event late on Thursday, Mr Remolona told reporters that the BSP could deliver an interest rate of 25 basis points. (bp) rate cut at August 15 meeting.

He said there could be one or two rate cuts in the second half. “For the rest of the year, the range is between 25 bp and 50 bp,” he added.

Mr Remolona noted that the BSP could start easing ahead of the US Federal Reserve expected to cut interest rates in September.

The BSP chief said he is not concerned about the potential impact on the peso, noting that there would be only a “little bit” of pressure on the currency.interest rate if the BSP cuts spending before the Fed.

However, Mr Remolona said it still sees the need for “sufficiently tight monetary policy settings” until inflation can calm down. Fcertainly within the intended bandwidth of 2-4%.

“A restrictive policy will also help keep within limitsFExpectations remained anchored amid a potential build-up of upside risks going forwardFlation,” he added.

The BSP has cut its risk-adjusted interest rateFThe expectation for this year is 3.8%, compared to 4% previously. However, she raised her risk-adjusted forecast for 2025 to 3.7% from 3.5% previously.

Meanwhile, the central bank has also adjusted its average baselineFexpected to 3.5%, compared to 3.8% previously. It also raised its baseline forecast to 3.3% for 2025 from 3.2%.

Mr Remolona noted that their less aggressive stance was due to the “better than expected” April. inflation rate.

Headline inflation accelerated for the third month in a row from 3.7% in March to 3.8% in April. It was also the fifth month in a row in which inflation fell within the target range of 2-4%.

For the first four months of 2023, inFaverage 3.4%.

The BSP chief, however, warned of risks to the inFThe outlook for the economy continues to be ’tilted upwards’.

“Potential price pressures are mainly related to higher transport costs, food prices, electricity rates and global oil prices,” Mr Remolona said.

BSP Vice Governor Francisco G. Dakila, Jr. said the BSP still expects that inflation could potentially exceed the target range of 2-4% from May to July, amid positive fundamental evolution.Ffects.

‘But even if there were a violation of the inFIt is expected that this will be temporary and that there will be a return to the target band,” Mr Dakila added.

LESS HAWKISH
Meanwhile, Gareth Leather, Senior Asia Economist at Capital Economics, noted that the BSP was less aggressive at Thursday’s meeting than at its April meeting.

“It is not only the central bank that has intervenedFforecast for this year, but clearly hinted that interest rates would be cut in the third or fourth quarter. This supports our forecast that the easing cycle will begin in August,” he said in a note.

ING Bank NV Manila senior economist Nicholas Antonio T. Mapa said Mr. Remolona took a “more forgiving attitude” during Thursday’s meeting.

“Despite this recent change in tone from the previously hawkish Remolona, ​​we remain committed to our previous expectation that the BSP can only cut the policy rate ‘once the Fed does,’” he said in an email note.

Markets initially expected the US Federal Reserve to cut interest rates as early as June, but this has been pushed back to the fourth quarter due to continued economic growth.Flation in the United States.

Mr. Leather said Philippine was insideFGrowth should slow further in the coming months.

“While inflation is likely to remain high in the coming months, it should decline in the second half of the year due to an increase in agricultural supply, slower economic growth and more benefits.Fical basis eFfects,” he added.

Miguel Chanco, chief emerging Asia economist at Pantheon, saidFThe forecast could possibly exceed the target band in May.

“A small breach of the upper limit remains likely this month, given the still unfavorable food price baseFfects in the game,” he said in a note.

“But the May squeeze should be the peak, with a sustained period of disinflation set to continue from June – with a food price base.Ffects U-turn to sharply favorable – which opens the door for the FThe first of three 25 basis point rate cuts we expect this year,” he added.

Mr Leather also expects the BSP to cut rates by 25 basis points in August, with further rate cuts at the end of this year.

For his part, Mr. Mapa expects the FThe first interest rate cut will take place in October.