Local interest rates predicted to peak in Q1

Interest rates in the Philippines might start receding in the second half of this year after rising further in the first quarter as central banks across Asia, including the Bangko Sentral ng Pilipinas (BSP), may take their cue from American regulators who are expected to react to a recession, according to Deutsche Bank.

Deutsche Bank expects the BSP to raise its policy rate by an additional 50 basis points or 0.5 percentage point during this first quarter of 2023 to bring it to a peak of 6 percent, and then reduce this to 5 percent within the fourth quarter.

The German group’s research team said in a commentary monetary policymakers in the region, except for those in Thailand, “may be nearing an end to rate hikes, if not having reached that point already.”

Deutsche Bank estimates that terminal or peak rates are likely to be reached by the end of this first quarter of the year.

Seen at the vanguard is the Bank of Korea (BoK), the policy stance of which is seen to have now shifted to neutral—neither going for further hikes nor moving on to rate cuts—as the momentum of economic growth in South Korea weakens.

“Looking much further ahead, we have maintained our forecast of rate cuts by the BoK starting in [the fourth quarter], assuming our US team’s forecast of a US recession [in the third quarter] that prompts the Fed to begin its own rate cuts [in the fourth quarter],” Deutsche Bank said.

“We also see BI (Bank Indonesia) and BSP delivering rate cuts during the [fourth] quarter,” it added.

The BSP policy rate is currently at 5.5 percent, which BSP Governor Felipe Medalla said is precisely in the Goldilocks zone of one to 1.25 percentage points higher than the US federal funds rate that ranges at 4.25 percent to 4.5 percent. —Ronnel W. Domingo