ANZ: Stubbornly high inflation to block rate cuts in 2024

Bangko Sentral ng Pilipinas (File photo / Philippine Daily Inquirer)

MANILA, Philippines — Rate cuts are unlikely to be on the table of the Bangko Sentral ng Pilipinas (BSP) this year as inflation—while softening—is still close to the upper end of the central bank’s 2 to 4 percent target range, ANZ Research said.

While it does not see monetary policy easing happening in 2024, ANZ said in its quarterly research released on Tuesday that aggressive rate reduction could happen next year, with the BSP seen kicking off its easing cycle with a half percentage point cut to the policy rate in March 2025.

READ: Think tank: Aggressive rate cuts coming, starting with PH in August

ANZ is projecting a 150-basis point reduction next year that, if realized, would bring the benchmark rate to 5 percent by the end of 2025, from a 17-year high of 6.5 percent at present.

As it is, the bank banded the Philippines together with Indonesia — where a falling rupiah is forcing monetary authorities to keep rates high — as Asian economies that are unlikely to ease in 2024.

“Rate cuts in Indonesia and the Philippines are also not on the table this year. In Indonesia, both the overall and basic [balance of payments] have weakened whereas in the Philippines, inflation though receding, is still running close to the upper bound of the official target,” ANZ said.

June 27 meet

All nine economists polled by the Inquirer last week expect the BSP’s policy rate to remain unchanged at the June 27 meeting of the Monetary Board (MB), the highest policymaking body of the central bank. Analysts said a weak peso that had fallen to a near 20-month low is preventing the MB from easing much sooner.

While most market watchers blamed the peso’s volatility on hawkish signals from the US Federal Reserve — which is expected to delay its rate cuts amid stubbornly high inflation stateside — some observers also said the local currency’s weakness can also be due to dovish remarks from some BSP officials recently.

READ: Wanted: ‘Sooner than later’ Bangko Sentral rate cuts

BSP Governor Eli Remolona Jr. had said that the central bank might start loosening its ultra-tight monetary policy settings in August by 25 basis points while penciling in another rate cut of the same size thereafter for a total 50 bps reduction to the key rate this year.

Remolona also floated the possibility of the BSP cutting ahead of the Fed, as domestic inflation remained within the central bank’s 2 to 4 percent target range so far this year. Figures showed inflation quickened to 3.9 percent in May from 3.8 percent in the previous month, which was not as bad as many analysts had expected.

At the same time, the BSP chief acknowledged that financial conditions are already tighter than necessary after data showed that economic growth in the first quarter was restrained by expensive borrowing costs.

Moving forward, ANZ said the Philippines’ improving external position could provide support for the peso.

“Talk of rate cuts by BSP officials has pushed [the peso] to near all-time lows. However, there has been a noticeable improvement in the Philippines’ external position, which should help the currency recover later in the year,” the Bank said.