BSP rates seen staying higher for longer

MANILA  -Goldman Sachs now expects the Bangko Sentral ng Pilipinas (BSP) to start cutting its benchmark rate later next year, in tune with signals from the United States Federal Reserve.

Goldman Sachs said in a commentary that they pushed back their forecast for when the Fed would begin rate cuts to the fourth quarter of 2024 instead of the second quarter as previously predicted.

The American financial services giant noted that the FOMC (Federal Open Market Committee of the Fed, corresponding to the BSP’s Monetary Board) meeting earlier this month appeared to raise the bar for rate cuts next year, updating rate projections to just a 0.5 percentage point of rate cuts next year. This is just half of the FOMC projections stated last June.

READ: Global central banks unite in ‘higher for longer’ credo

Following that meeting, “we now forecast just one 0.25 ppt Fed funds rate cut next year, versus three previously,” Goldman Sachs said.

Among Southeast Asian countries, “policy rates have typically tracked the Fed cycle closely,” it added. “Given this dependence on Fed policy choices, we are adjusting our policy rate forecasts across (Southeast Asian) economies.”

Inflation still up

For the Philippines, Goldman Sachs noted that inflation is still “meaningfully above” the upper end of the BSP’s 2 percent to 4 percent target band.

READ: Philippine inflation rose to 5.3% in August

The American group added that, in the near term, risks to the BSP policy outlook are skewed in a hawkish direction.

This means that, if inflation eases back into the BSP’s target band by year-end, then central bank is likely to keep policy rate—currently at 6.25 percent—on hold.

On the other hand, if inflation does ease back into the BSP’s target band and growth momentum remains subdued next year, then BSP could ease policy prior to Fed policy rate cuts.

And yet, BSP Governor Eli Remolona Jr. said last week that policymakers were considering a rate hike in November, if supply shocks were considerable enough.

READ: BSP chief ‘honestly’ eyeing November rate hike

“We are pushing our forecast for policy rate cuts in the Philippines to the third quarter of 2024, from the second quarter previously.”

For this revision, Goldman Sachs took into account Remolona’s recent emphasis on maintaining policy rates through the first half of 2024, later Fed policy rate cuts, and the historical sensitivity of BSP policy to shifts in Fed policy.