BSP would start easing in the third quarter

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

THE BANGKO SENTRAL ng Pilipinas (BSP) could start easing policy as early as the third quarterFAccording to analysts, the situation continues to stabilize.

“At the earliest, rate cuts could begin next quarter, which would ease pressure on households,” Moody’s Analytics said in its weekly highlights report.

ING Bank NV Manila senior economist Nicholas Antonio T. Mapa said inflation “could continue to surprise on the downside before falling sharply in the third quarter.”

“By then, we expect the BSP to have room to ease monetary policy, especially given signs of a slowing post-crisis economy. FFirst quarter GDP showed a disappointing 5.7% annualized print,” he said in an email on Monday.

BSP Governor Eli M. Remolona Jr. has said the central bank will consider interest rate cuts if promptedFrelationship can be settled Fstable around 3% for several months.

The Monetary Board will hold its next policy review on Thursday. a Business A poll showed that 17 out of 19 analysts expect the central bank to keep its policy rate stable at a 17-year high of 6.5%.

In a follow-up email, Moody’s Analytics economist Sarah Tan said the BSP would consider thisFand the recent performance of the peso in its monetary decisions.

“Good progress has been made on inflation, with the latest figures for April being within the BSP target of 2-4% for the fifth month in a row,” she said.

Inflation accelerated from 3.7% in March to 3.8% in April. However, it was the Fwhen the following month arrivesFThis happened within the BSP’s 2-4% target.

The BSP expects inflation to average 3.8% this year.

“While we expect inflation to hover slightly around the upper limit in the coming months as dry weather associated with the El Niño climate pattern damages food harvests and disrupts supply,FIt is expected to be back within the target range by early Q3,” Ms Tan said.

The central bank previously warned about thisFInterest rates could temporarily exceed the 2-4% target over the next two quarters due to basis eFfects and weather conditions that have damaged agricultural production.

The El Niño in the tropical Pacific is weakening, but “hotter and drier conditions” remain, according to the state weather agency.

The damage to agriculture due to El Niño had risen to 6.35 billion euros on May 8. Rice was the most affected crop, accounting for 51.93% or €3.3 billion of the total damage. This was followed by corn at P1.94 billion and high-value crops at P1.07 billion.

“El Niño is expected to wane from May onwards and after that we can expect some relief from the heat, which could also benefit our agricultural sector,” Mr Mapa said.

Agricultural production remained stable in the first quarter and grew by 0.05% to 428.99 billion euros during the dry period.

Mr Mapa said inflation could slow sharply in the third quarter.

“Market participants are currently predicting that inflation will exceed the upper end of the BSP’s inflation target of 2-4%. However, if rice prices remain unchanged at around P55 per kilo, oil prices will continue their decline and domestic demand will remain weak.FThe target is being circumvented and has already fallen sharply in August,” he said.

Meanwhile, Ms Tan noted that while the peso has weakened in recent weeks, it is expected to stabilize next quarter.

“Should these developments materialize, it will defraud the BSPF“I tend to cut rates as early as August – the only Monetary Council meeting in the third quarter,” she added.

After Thursday, the Monetary Board’s next two policy meetings are on June 27 and August 15.

However, Ms Tan said interest rate cuts could be postponed if inflation accelerates further.

“However, there is a chance that monetary easing could be delayed until October if inflation continues to rise above the target range for longer than expected, or if the Philippine peso weakens further,” she said.

“In this regard, the BSP will monitor the moves of the US Federal Reserve to ensure the stability of the peso,” she added.

Meanwhile, HSBC ASEAN (Association of Southeast Asian Nations) economist Aris D. Dacanay said the BSP is likely to cut interest rates in the fourth quarter after the US Federal Reserve begins easing.

“The BSP has the luxury of keeping its monetary policy tight, while the Fed takes a more hawkish tone. Liquidity in the system remains intact, so there is no urgency to loosen the monetary reins,” he said.

Markets initially expected the US central bank to cut interest rates as early as June, but this has been postponed until the fourth quarter due to persistent inflation.

Mr Remolona previously said that although the central bank controls the Fed, its decisions are independent.

The US central bank kept the Fed funds rate steady at 5.25-5.5% at the end of the April 30-May 1 meeting.