Interest rate cut likely after Fed – Recto

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

THE BANGKO SENTRAL ng Pilipinas (BSP) is likely to cut its policy rate after the US Federal Reserve (the Federal Reserve) indicated that rates might not start easing until December.

Treasury Secretary Ralph G. Recto said in a text message that he does not think the BSP will cut rates before the Fed.

Asked whether the BSP would begin its easing cycle as soon as the US central bank cuts rates, Mr Recto, a member of the Monetary Board, said this was “very likely”.

The Federal Reserve kept interest rates steady on Wednesday and postponed the start of interest rate cuts until perhaps December, Reuters reported. Fed officials now predict just one rate cut this year, down from previous expectations of three.

HSBC economist for ASEAN (Association of Southeast Asian Nations) Aris D. Dacanay said the BSP does not have much room to stay ahead of the Fed.

“Without dovish signals from the Fed, we think the room for the BSP to cut as early as August without triggering much volatility in the peso is limited,” he said in an email.

HSBC expects the BSP to start cutting rates after the Fed in the fourth quarter. The Monetary Board meets only twice in the fourth quarter: October 17 and December 19.

The Monetary Board has kept its benchmark interest rate stable at 17 years high of 6.5% since October 2023.

BSP Governor Eli M. Remolona Jr. has previously said the central bank can start cutting spending at the earliestRates are in August, with a total of 25-50 basis points this year.

Mr Dacanay said thatFThe situation should slow down and settle down FThis is certainly within the 2-4% target for the central bank to consider easing.

“While this is not our base case, the BSP would have the opportunity to cut ahead (of the Fed) if inflation It will be relaxed suddenly and immediately before the August meeting,” he said.

“And this will depend on when the tariFwhat tariff reduction on rice will be implemented and how quickly the policy transmission will take place.”

The Council of the National Economic and Development Authority has approved a reduction in rice import tariffsFfs to 15% from 35%. It is widely expected that this measure will reduce rice prices and eFfectively, inFlat.

Emilio S. Neri, Jr., chief economist of the Bank of the Philippine Islands (BPI), said the Fed’s policy will “deFinitially” inFluence the BSP’s next moves.

However, he said the BSP does not need to wait for the Fed. “Even if the peso comes under heavier than normal pressure, the BSP can cut spending well before the Fed.”

Mr Remolona previously said the BSP does not need to wait for the Fed to start its own easing cycle.

“As long as Philippine inflation numbers continue to surprise negatively, the BSP may already start cutting back,” Neri added, noting that he expects only “modest” cuts.

Headline inflation accelerated for the fourth month in a row to 3.9% in May, up from 3.8% in April. However, this was the sixth consecutive month in which inflation settled within the BSP’s target range of 2-4%.

The BSP expects inflation to exceed target through July due to base eFfects.

Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., said the BSP is likely to match the rate cuts the Fed implements later this year and 2025 to maintain healthy interest rates.Fferentials.

“If a Fed rate cut looms in September 2024, the BSP could start cutting rates by August 2024 as there are no BSP rate meetings in September 2024,” Mr Ricafort added.

The Monetary Board’s next policy meeting is on June 27. of Reuters