BSP tipped to slash policy rates by 100 bps this year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is likely to move in lockstep with the US Federal Reserve, even if the latter delays monetary easing, to avoid pressuring the peso and stoking inflation, Bank of America (BofA) said.

If the Fed cuts interest rates this June as economists predict, BofA said the Philippines, China, India, Indonesia, Korea, Thailand and New Zealand would likely follow suit around the same time or in the second half of the year.

On the flip side, BofA said Australia, Malaysia and Vietnam could keep rates on hold with an easing bias, while Taiwan and Singapore would likely keep rates steady but with a tightening bias due to inflation concerns.

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BofA said Japan stands out as an exception “with further tightening” following this week’s hike, the first time in 17 years.

In lockstep with the US Fed

If the Fed delays its first cut beyond June, BofA said the Philippines, China and Indonesia might also postpone easing to safeguard their currencies against capital outflows.

It said these central banks may cut rates in the second semester.

“In Indonesia and the Philippines, which are historically sensitive to capital flows and foreign exchange movement, we expect the BI (Bank of Indonesia) and BSP to cut policy rates starting in second quarter, by a total of 75 bp (basis points) and 100 bp, respectively, in 2024, driven by falling inflation,” it added.

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At its meeting this week, the Fed kept interest rates steady as expected, and hinted at multiple cuts this year.

For its part, the BSP will hold its next policy meeting on April 8 instead of the original schedule of April 4. No reason was given.

In February, the BSP left its key rate unchanged at 6.5 percent amid persistent risks to the inflation outlook. —IAN NICOLAS P. CIGARAL