BMI: Philippine rates may have already peaked
MANILA —Interest rates may have already peaked in the Philippines and the Bangko Sentral ng Pilipinas (BSP) will likely start easing its ultra-tight monetary policy in the second half of 2024, BMI Research, a unit of the Fitch Group, said on Monday.
“Receding price pressures reduce the need for the BSP to lean toward fresh hikes to anchor inflation expectations. And we are inclined to believe that monetary tightening has finally concluded,” BMI said in a commentary sent to journalists.
The Fitch unit said the rate cuts would only happen in the second semester at the earliest, matching its expectations for the US Federal Reserve considering how “tightly linked” the United States and Philippine central banks are in terms of monetary cycles.
READ: Philippine rates to stay higher for longer to tame inflation, says BSP chief
“A quick return to easing before the Fed could dislodge inflation expectations and weaken the peso—something which the BSP will be mindful to avoid,” BMI said.
Restrictive conditions
“As such, we think that financial conditions will be kept restrictive throughout the first half of 2024,” it added.
State statisticians last week reported that inflation eased to 3.9 percent in December, from 4.1 percent in November. This is the first time in 20 months that price growth eased back to within the central bank’s 2 to 4 percent target range.
The December print was also the lowest reading in 22 months.
READ: PH December inflation eases to 3.9%
But despite the milder increase in prices last month, the BSP said it deems it necessary to “keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident.”
At its last meeting for 2023, the powerful Monetary Board kept the BSP’s policy rate unchanged at 6.5 percent, the tightest in 16 years.
In an interview with Bloomberg TV on Friday, Finance Secretary Benjamin Diokno said the BSP can match a 75-basis point cut by the Fed with a 100-bp reduction in its own benchmark rate.
“I see like 5.5 percent [policy rate] by the end of 2024. The timing [of the rate cuts] of course will be data dependent and probably toward the second semester of [2024],” said Diokno, who occupies one seat in the Monetary Board. —Ian Nicolas P. Cigaral INQ
