Metrobank: BSP has room to ease ahead of Fed, again

The Bangko Sentral ng Pilipinas (BSP) has space to cut ahead of the US Federal Reserve again amid a favorable inflation outlook at home, a move that could build Governor Eli Remolona Jr.’s reputation as one of the most dovish central bank chiefs in the region, Metrobank said.

The policymaking Monetary Board will meet again in October and in late December, while the US Fed will decide on rates in September, November and mid-December.

READ: Delayed US Federal Reserve rate cut may complicate BSP easing cycle

Given this “precarious” timing, Nicholas Mapa, chief economist at Metrobank, said “we believe we could see the BSP going ahead of the Fed and reducing policy rates at its October meeting.”

“This would cement Remolona’s reputation as a front runner as BSP remains focused on supporting growth now that the inflation outlook remains favorable,” Mapa said in a commentary

“We retain our 2+1 rate call (two cuts with a possibility of a third cut) for up to 75 bps (basis points) worth of rate cuts by the central bank,” he added.

At its Aug. 15 meeting, the MB slashed the benchmark rate by 25 bps to 6.25 percent. That kicked off what Remolona had called a “calibrated” easing cycle while hinting at another cut of the same size either at the October or December meeting of the MB.

Target range

Weeks after that decision, government data showed inflation slowed to 3.3 percent in August, the softest reading in seven months and easing back to within the 2 to 4 percent target range of the BSP.

Broken down, food inflation cooled to 3.9 percent in August after rice price gains moderated to a 10-month low of 14.7 percent. State statisticians said rice price inflation may fall to single-digit level in September due to reduced tariffs on the staple grain.

The slower inflation last month vindicated the central bank’s decision to cut rates early and ahead of the Fed, which is widely expected to kick off its own easing cycle this month. For Metrobank, Remolona “displayed central bank independence by forging ahead of the Fed.”

“The BSP is probably the central bank in the region with the most runway to reduce policy rates to more normal levels to help chase growth objectives,” Mapa said.

“A healthy 150 bps of cumulative reduction over the next couple of months could help generate a takeoff for private investment and ensure a more sustainable course for growth,” he added. INQ