Bangko Sentral ng Pilipinas. (File photo / Philippine Daily Inquirer)
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) could raise its policy rate one more time this year by 0.25 percentage point to 6.5 percent before rolling back to the end of 2024 at 5.5 percent amid expectations that the US Federal Reserve will start rate cuts next year.
Bank of America (BofA) Global Research said in a report they expect another rate hike from the BSP while most central banks in Southeast Asia are done with their hiking cycle and should at least hold steady at their current stance.
“Further rate hikes may not be off-the-table as the new [BSP] Governor has been cautious,” said the research unit of the BofA, referring to Eli Remolona Jr.
“As the Fed narrative starts shifting toward a decision between holding and easing, [we] believe countries with high real rates such as Indonesia and the Philippines should follow the Fed closely,” they added.
Along with US Fed
The American group said that, similarly, they expect one additional 0.25-ppt increase by US monetary authorities, which will bring in September or November the US federal fund rates to a peak of 5.5 percent to 5.75 percent.
Following that, Bofa Global Research predicts that the Fed will start in June 2024 a series of three 0.25-ppt, quarterly rate cuts (a total of 0.75 ppt) for next year, and four such reductions (a total of one ppt) in 2025.
Further, the BSP is seen to be more dovish with a total of one ppt of rate reductions in 2024.
“We think the BSP will likely consider another [0.25-ppt] hike before year-end, reflecting some pressure to maintain rate differentials with the US Fed and still-elevated core inflation,” BofA Global Research said.
“Once the Fed starts cutting and inflation returns to target, we expect the BSP to start its easing cycle — we expect [one ppt] of cuts in 2024,” they reiterated.
‘Hawkish pause’
Earlier this month, Remolona said the BSP was on a “hawkish pause” and has leeway for a further policy rate increase amid the continued prevalence of upward pressure on prices of goods and services even as market forecasters think that interest rates may be kept unchanged for as long as until early next year.
When the Monetary Board announced on Aug. 17 their decision to keep the BSP’s benchmark overnight borrowing rate at 6.25 percent for the third consecutive policy meeting, they took note of potential price pressures that are related to the impact of possible higher transport charges; higher minimum wage adjustments; persistent supply constraints on key food items; and the effects of El Niño weather conditions on food prices and power rates.
At 6.25 percent, the BSP policy rate is currently one of the highest in the Asia-Pacific region, following an aggressive tightening run that saw 4.25 percentage points (ppt) of a cumulative hike between May 2022 and March 2023.