BSP to take time before cutting rates after ‘robust’ GDP–Citi

The “fairly robust” economic growth last year will likely convince the Bangko Sentral ng Pilipinas (BSP) to not rush into cutting rates and instead focus on sustaining the downtrend in price growth, Citibank said.

“Since GDP (gross domestic product) growth is expected to remain fairly robust, the BSP would be in no hurry to cut rates, and continue to prioritize bringing inflation back to target on a sustained manner,” said Nalin Chutchotitham, economist at Citi.

The economy grew 5.6 percent year-on-year in 2023, a slowdown from the 7.6-percent expansion in 2022, the Philippine Statistics Authority (PSA) reported on Wednesday.

Last month, BSP Governor Eli Remolona Jr. said a strong 2023 GDP number would give the BSP reason to stay hawkish. But Remolona also said the central bank could possibly start easing its ultra-tight monetary policy settings this year, although he added that it might be too early to cut the policy rate in the first semester.

Analysts expect the BSP to start cutting rates in the middle of the year—the timing and magnitude of which, they said, would likely match the possible easing moves in the United States to avoid pressuring the peso and stoking inflation via costlier imports.

“Risks to this outlook include a faster Fed’s rate cut, coupled with lower-than-expected GDP growth and inflation in most of H1 ’24 could potentially provide the BSP with options to loosen monetary policy earlier,” Citi’s Chutchotitham said. —Ian Nicolas P. Cigaral INQ