Metrobank bets on 50-bp rate cut in Q4

INQUIRER PHOTO / GRIG C. MONTEGRANDE

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) might slash its policy rate by half a percentage point this year, with the cut likely to happen in the fourth quarter or after the US Federal Reserve makes its easing move, Metrobank Research said.

In a commentary, Metrobank said it reduced its projected cumulative rate cuts of the BSP this year from 75 basis points (bps) previously to take into account its rate outlook on the Fed, which is expected to also reduce its policy rate by 50 bps in 2024.

What did not change though was Metrobank’s prediction that the BSP won’t cut ahead of the Fed to avoid pressuring the peso, which has sunk to 19-month lows.

“The Fed may begin cutting rates as early as its Sept. 18 FOMC (Federal Open Market Committee) meeting … as inflation is expected to have peaked by June and July, observable by August,” the Bank said.

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

“The BSP may begin its own easing cycle in the fourth quarter, lagging the Fed’s first policy rate cut to support the peso. Given the new projections on US policy rate, we now forecast a total of 50 bps in cuts for the year to 6 percent, down from our previous projection of 75 bps,” it added.

Volatility of the peso

Metrobank is one of the institutions that believe that cutting ahead of the Fed could worsen the volatility of the peso, which had inched closer to the record-low 59-level against the US dollar.

While most market watchers blamed the peso’s bearishness on the hawkish signals from the Fed, some observers said such a weakness can also be due to dovish remarks from some BSP officials recently.

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 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 to 4.5 percent. This, after food inflation slipped to 5.8 percent in May from 6 percent previously, limiting the rise in the headline rate.

For that reason, BSP Governor Eli Remolona Jr. had said the central bank may cut rates ahead of the Fed, which he expects to ease in July. INQ