No BSP rate cut just yet, economists say

The Bangko Sentral ng Pilipinas (BSP) will likely keep the policy rate unchanged for the seventh straight meeting this week, according to the Inquirer’s poll of 10 economists that showed divided predictions over the direction of monetary policy in the country.

Six out of the 10 economists surveyed believed that the Monetary Board (MB) would keep the benchmark rate untouched at an over 17-year high of 6.5 percent at their meeting on Thursday, Aug. 15.

Instead, the majority of six economists who predicted rates to stay on hold this month expected the BSP to only start easing when the MB convenes again to review rates on Oct. 17, with a 25-basis point cut likely on deck at that meeting.

But analysts did not rule out the possibility of an off-cycle rate reduction as floated by Governor Eli Remolona Jr. himself.

Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said the “upbeat” year-on-year economic growth recorded in the second quarter would likely prompt the BSP to defer a rate cut this week.

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Data showed gross domestic product (GDP) expanded at an annualized rate of 6.3 percent last quarter, beating market expectations and settling to within the 6 to 7 percent growth target of the Marcos administration.

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However, growth of consumer spending—which historically accounts for over 70 percent of GDP—eased to 4.6 percent, the weakest seen postpandemic amid tight financial conditions.

For Asuncion, the BSP might opt to cut rates after the US Federal Reserve, which is expected to begin in September what’s shaping up to be an aggressive easing cycle amid recession worries stateside.

“With a technical recession ‘only’ for consumption, the BSP may delay its rate cut on the 15th, as policymakers will prioritize the return of disinflation later in the year,” he said.

A nice shot in the arm

Last week, Remolona struck a less dovish tone and said a rate cut this month was “a little less likely” because the July inflation reading turned out “slightly worse than expected.”

Data showed inflation quickened to 4.4 percent in July, breaching the BSP’s 2 to 4 percent target range for the first time this year partly due to distortions from base effects. But if an August easing doesn’t happen, Remolona said the BSP was “always open” to an off-cycle rate cut.

For Nicholas Mapa, chief economist at Metrobank, the BSP can opt to cut policy rates this week to finally provide the economy a “nice shot in the arm” as inflation is projected to follow a downtrend starting in August.

“On face value, cutting rates while inflation is above target and growth is robust would not be likely,” Mapa said.

“What is becoming very clear is that the BSP will not want to wait until its October meeting to provide some relief to the economy, with the governor working the proper timing for doing so,” he added. INQ

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