The Bangko Sentral ng Pilipinas (BSP) has room to “aggressively” ease monetary policy amid growing concerns about the economy’s health, BMI Research said, while penciling in a jumbo rate cut at the October meeting of the Monetary Board (MB).
In a commentary sent to reporters on Wednesday, BMI projected a 100-basis point (bp) cumulative reduction of the local benchmark rate this year. That included the quarter-point cut back in August that brought the key rate to its current level of 6.25 percent.
The unit of the Fitch Group said the BSP might deliver a 50-bp cut at the Oct. 16 meeting of the MB. And more easing actions would likely come once the MB convenes again in December, BMI added as it expects the BSP to cap 2024 with another 25-bp cut.
Notably, the outlook of BMI runs counter to the policy signals from BSP Governor Eli Remolona Jr., who had said the market can expect a “gradual” cutting cycle. In recent occasions, the central bank chief had repeatedly said that outsized rate reductions are only appropriate if the economy is headed for a hard landing.
But BMI said easing inflation at home and the decision of the US Federal Reserve to mark the beginning of its easing era with a half-point reduction last month gave the BSP “leeway” to be more dovish and boost growth “at the earliest possible time.”
At the same time, the Fitch unit said the Fed is set for another 50-bp cut in December, something that would give the BSP “more policy room to maneuver without external stability constraints” or worrying about the peso.
”We have highlighted that the economy is in need of support,” BMI said. “The boost received from a surge in investment activity will prove difficult to sustain against the backdrop of high interest rates.”
More cuts in 2025?
For next year, BMI expects the BSP’s easing cycle to be “in full swing”, penciling in another 100-bp cumulative cuts that would bring down the key rate to around 4.5 percent, or back to prepandemic level.
“While we are confident that the BSP will continue to loosen policy, we are less sure of its magnitude. The October meeting could very well conclude with just a 25-bp cut if policymakers adopt a more cautious approach towards easing following cuts in the reserve requirement ratio,” BMI said.
”On top of that, our BSP forecast hinges on the Fed’s interest rate trajectory. If the Fed chooses to cut by 25 bps in December instead of 50bps, the BSP could stand pat in December,” it added. —Ian Nicolas P. Cigaral