BSP unlikely to cut rates ahead of US Fed, says Nomura

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) would unlikely cut rates ahead of the US Federal Reserve despite “improving” inflation outlook at home, according to a report by Nomura, which stressed the need to remain supportive of the peso to avoid stoking imported inflation.

The insights of the Japanese investment bank runs counter to the outlook of BSP Governor Eli Remolona Jr., who had said the BSP “may go first” before the Fed—which he expects to start loosening monetary policy in July—despite bearish sentiment on the peso.

In its report, Nomura said it still expected the BSP to start its easing cycle in October, while the Fed was seen making its first cut in September.

”Our long-held view remains intact that a still-large current account deficit, particularly in the first half of 2024, suggests a need for BSP to keep interest rate differentials supportive of the currency and keep imported inflation in check,” Nomura said.

”We still think BSP will start its cutting cycle only in October when we expect inflation to be more entrenched within its 2 to 4 percent target,” it added.

READ: May inflation rises to 3.9%, highest in five months

Government data showed inflation quickened to 3.9 percent in May from 3.8 percent in the previous month on the back of higher utility costs.

While the latest reading almost breached the central bank’s 2 percent to 4 percent target range, last month’s price gains were not as bad as many analysts had expected and still fell within the BSP’s forecast range of 3.7 percent to 4.5 percent.

Nomura now predicts inflation to average 2.8 percent this year, lower than its old forecast of 3.7 percent. INQ