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There’s only a 15-percent chance that the Bangko Sentral ng Pilipinas (BSP) would resort to a forceful half-point rate cut at its hotly anticipated policy meeting on Wednesday, Nomura Global Markets Research said, citing the need for a “calibrated” shift to easier monetary setting.

In a commentary, the Japanese investment bank instead assigned an 80-percent probability that the powerful Monetary Board (MB) would opt for a modest quarter point cut at its meeting on Oct. 16.

This suggests that there’s only a 5 percent possibility of the BSP hitting the pause button on its easing action.

At the core of Nomura’s conservative forecast is the expectation that the BSP would “adhere more strictly to its inflation targeting framework” and be “more driven” by the latest data on inflation.

Nomura also believed that the central bank is very mindful of ongoing geopolitical tensions that can push up oil prices and mess up with the inflation outlook.

“The policy statement and comments in the press briefing are therefore also likely to remain dovish, with BSP continuing to comment that it sees scope to deliver more rate cuts,” the bank said.

“While BSP could raise its inflation 2024-25 forecasts, taking into account recent increases in global crude oil prices, these are still likely to be assessed by BSP as remaining ‘target-consistent,’” it added.

Inflation at 4-year low

Latest data show inflation retreated to a four-year low of 1.9 percent in September, with much of the slowdown coming from softer food price growth, which sharply moderated to 1.4 percent.

That put the year-to-date headline inflation rate to 3.4 percent, well within the 2 to 4 percent target range of the central bank. As it is, the BSP is now at a point where it has to unwind its most forceful tightening actions in two decades, which had sent the benchmark rate to its highest level in 17 years to tame stubbornly-high inflation.

Cutting borrowing costs is seen necessary amid market predictions that the economy may grow below the government’s target for this year after consumption showed signs of weakening.

But unlike in the United States where a slowing job market had prompted the US Federal Reserve to deliver an outsized 50-basis point (bp) cut in September, the BSP entered its easing era in August with the traditional quarter point reduction to the policy rate, which is now at 6.25 percent.

Moving forward, Governor Eli Remolona Jr. said the central bank would take “baby steps” until the key rate falls to 4.5 percent by the end of 2025.

Separately, London-based Capital Economics said fiscal tightening and weak export demand would keep growth “subdued”, increasing the need for “further support” from the BSP.

”Our forecast is that a combination of weak economic growth and falling food price inflation will keep inflation low,” Capital Economics added.