BSP key rate seen staying longer at 6.25%

Bangko Sentral ng Pilipinas Governor Felipe Medalla. Photo from the BSP’s Facebook page

MANILA  -The pause on the Bangko Sentral ng Pilipinas’ (BSP) benchmark rate hikes is expected to be extended over the next quarter or two.

“We [the Monetary Board (MB)] are quite confident that we have already done enough” in the fight against inflation, with the monthly headline readout having receded to 6.1 percent in May from a peak of 8.7 percent in January, BSP Governor Felipe Medalla said in an interview with Bloomberg TV.

Medalla said that in the policy meeting held on June 22, there were “very little” arguments that support either a rate hike or rate cut.

Thus, the BSP’s overnight borrowing rate was unchanged for the second meeting in a row at 6.25 percent.

READ: BSP policy rate kept at 6.25%

“This situation is likely to last for quite some time,” Medalla said. “Unless there are new surprises, we expect inflation (monthly print) to be below 4 percent by October or November.”

Miguel Chanco, chief economist on emerging markets at Pantheon Macroeconomics, said in a commentary to not expect any BSP rate movement until the fourth quarter this year.

“We maintain that the BSP will remain on hold for the foreseeable future, with inflation, while declining, still hovering above the 4-percent upper-bound of its target range,” Chanco said.

He expects the headline rate to return to the 2 percent to 4 percent target band, at least on a monthly reading, as early as September and to fall below 3 percent by the end of 2023.

“Assuming no external and domestic shock to prices, this trajectory should give the [Monetary] Board ample room to start rolling back its aggressive tightening from the fourth quarter, when we expect 50 basis points worth of rate cuts,” Chanco said.

GoldmanSachs thinks there will be no movement throughout the remainder of this year, but expects the BSP to start cutting policy rates in the first semester of 2024.

That would be around the same time when GoldmanSachs forecasts that the US Federal Reserve (Fed) will start loosening their own monetary policy settings.

READ: Global price pressures threaten Philippine inflation downtrend

But for the Bank of the Philippine Islands, it might be premature to conclude that the BSP’s hiking cycle is over.

“One or two more rate hikes are still possible for the rest of the year depending on how the FX market will react in case the Fed hikes again,” the bank said.

Meanwhile, ING Bank expects the BSP policy rate unchanged for two more MB meetings if inflation continues to moderate and head closer to target range.

The Dutch group also sees the possibility of the BSP cutting rates once inflation settles back within target.