Following Thursday’s decision to keep policy rates unchanged, analysts now see the Bangko Sentral ng Pilipinas (BSP) keeping the benchmark steady until the third quarter of 2024, when some say the central bank might start rate cuts.
In their policy meeting on Nov. 16, the Monetary Board (MB) maintained the BSP’s policy rate at 6.5 percent, citing a moderation of their inflation outlook over the 2023-2025 forecasting horizon.
This followed an off-cycle increase of 0.25 percentage point that was announced last Oct. 26, when policymakers noted that the risks to their outlook continued to be significantly on the upside.
The MB reiterated this observation on Thursday, particularly when considering the potential impact of increases in transport fares, electricity rates, and international oil prices, as well as of higher-than-expected minimum wage adjustments in areas outside Metro Manila.
This led non-BSP analysts to the observation that the BSP remains hawkish despite a renewed pause on monetary policy tightening cycle, regarded as one of the most aggressive in the region.
“Overall, we continue to believe BSP’s hiking cycle is over and so maintain our forecast that the [BSP policy] rate will remain unchanged at 6.5 percent over the next several months,” said research analyst Euben Paracuelles of Nomura Group.
Even then, Paracuelles said in a research note that, because of the uncertainty and various factors contributing to inflation risks, they think that the BSP will continue to err on the side of caution and maintain its hawkish rhetoric “for a while.”
On Thursday, the BSP said that it remained prepared to resume monetary policy tightening as necessary to steer inflation toward a target-consistent path, in line with its price stability mandate.
Target range
Meanwhile, Nomura also expects the BSP to only start its cutting cycle in September 2024. The Japan-based group forecasts that this is the time when the monthly headline inflation readout will return to the BSP’s target range of 2 percent to 4 percent.
Nomura expects the BSP policy rate to recede by a total of 1.5 percentage points to 4 percent from September 2024 to June 2025.
Goldman Sachs also expects no further changes in the policy rate until the third quarter of 2024.
However, the American group flags some risks that BSP could hike again in the coming months “should upside risks to inflation and/or renewed weakness in the Philippine peso materialize.”
HSBC economist Aris Dacanay also believes that the BSP policy rate will not move until the third quarter next year, which is when the United States Federal Reserve is also expected to begin cutting rates.
“We expect the BSP to follow the easing cycle of the Fed to help support the Peso and prevent ‘imported inflation’ from complicating the outlook,” Dacanay said.
Meanwhile, Pantheon Macroeconomics believes that the BSP will start rate cuts as early as February 2024.
“We continue to believe the BSP will have the policy space—and will be compelled—to lower its rate by [one percentage point to end at 5.5 percent] next year,” Pantheon Macroeconomics said.