Analysts betting on key BSP rate staying at 6.25%

Bangko Sentral ng Pilipinas. (File photo / Philippine Daily Inquirer)

The Bangko Sentral ng Pilipinas (BSP) is expected to keep its hands off the policy rate for the rest of the year, pegging it at the current 6.25 percent until at least the first quarter of next year even with inflation continuing to decelerate.

The Philippine Statistics Authority reported on Friday that July inflation fell to a 15-month low of 4.7 percent, but market analysts believe that the steady slowdown in the rate of increase in the prices of basic goods and services over the past six months is not yet enough to warrant a rate cut.

Goldman Sachs and Nomura group agreed on a continued pause for the BSP, with the latter adding that the central bank’s hiking cycle is over and that it is on a prolonged pause.

“We think a resumption of BSP’s hiking cycle will be inhibited by the continued decline in inflation, which we expect to continue in coming months, barring new supply-side shocks,” Nomura economist Euben Paracuelles said in a research note.

High bar

“At the same time, the bar for BSP to start its cutting cycle in the near term remains high, in our view,” Paracuelles added.

According to the economic research team at the Bank of the Philippine Islands, the current path of inflation gives the BSP the space to keep rates steady until the end of the year.

“So far, the probability of another hike is low, but it could go up depending on what the Fed will do,” BPI said. “There are significant upside risks to inflation, and keeping rates at current levels might be necessary to mitigate the impact of these risks.”

For GlobalSource Partners economist Romeo Bernardo, the July inflation print supported their view that the Monetary Board would  not need to match the United States Federal Reserve’s 0.25-percentage point policy rate hike made last month.

And “notwithstanding expectations of slowing economic growth as revenge spending eases and market talk of a policy rate cut, we think that prospect is unlikely within the year,” Bernardo said.

Indeed, BSP Governor Eli Remolona Jr. was even open to the possibility of raising the policy rate, perhaps as early as the next meeting on Aug 17, if supply shocks were large enough to push up prices at faster rates.

Remolona also reiterated in a briefing last week that the MB, the policymaking body which he chairs, would decide either way based on the data that will be available to them.

He also said that the BSP was taking care not to see the inflation rate go down too much after one of the most aggressive monetary policy tightening rounds implemented at economies around the world shed extraordinary measures taken in response to the COVID-19 pandemic.