THE decision to maintain key policy rates at 6.5 percent in the last meeting of the Monetary Board may be the last time the Bangko Sentral ng Pilipinas (BSP) leaves rates unchanged this year.
Global Source Partners country analyst Diwa Guinigundo is certain that at least one rate cut is confirmed based on the forward guidance given by BSP Governor Eli M. Remolona Jr.
Citi Philippines economist Nalin Chutchotitham, meanwhile, expects six more rate cuts in increments of 25 basis points (bps) to happen over the course of 12 months or between August 2024 and August 2025.
“One rate cut is therefore more likely, as the forward guidance has been quite confirmatory so far,” Guinigundo said.
“A second reduction in November or December is, as usual, data- driven both in terms of actual and projected inflation rates in the next two years. The balance of risks would also be an important metric for the BSP,” he added.
Chutchotitham, for her part, said the BSP may cut rates by 25 basis points in August, October and December in 2024 followed by February, May, and August in 2025.
“In any case, we note the risk of slower rate cuts, which most likely depend on the speed of inflation decline, the timing of the Fed’s rate cuts and potential depreciation pressure on the peso,” Chutchotitham said.
“Governor Remolona said on June 27 that the BSP is likely to be gradual with its rate cuts, and hence sees 25bp rate cuts in the third quarter and fourth quarter as a possibility when responding to a reporters’ question,” she added.
Guinigundo said factors that could tip the scales in the balancing act by the BSP when deciding on policy rates would include the production of grains and meat, as well as the timely imporation in the event of a shortfall in production.
The former Deputy Governor of the BSP stressed that non-monetary measures are important in complementing policy interventions made by the central bank.
This, he noted, is crucial given the expected delay in the reduction of the rice tariff and the periodic weekly increases in petroleum prices.
This could also lead to faster June inflation, at 4 percent from the 3.9 percent posted in May 2024. The latest inflation data will be released on Friday by the Philippine Statistics Authority (PSA).
“Even the BSP admitted that with higher prices for vegetables, meat and fish plus the short-run impact of the peso depreciation, some price pressures could have accumulated during the month,” Guinigundo said.
“Although difficult to pin down, a good computation of the country’s output gap will also help in ensuring that an early or more easing would not dislodge inflation expectation and add inflationary pressure to an otherwise manageable inflation scenario,” he also said.
Earlier, the BSP said expensive food items such as rice and the depreciation of peso may have led to faster inflation in June. (See: https://businessmirror.com.ph/2024/06/29/bsp-inflation-in-june-may-have-hit-3-4-4-2/)
In its latest month-ahead inflation forecast, the BSP said inflation may average 3.4 percent to as high as 4.2 percent in June 2024. The high end of the forecast exceeds the revised 3- to 4-percent inflation target for this year. (See: https://businessmirror.com.ph/2024/06/28/dbcc-maintains-growth-outlook-despite-raising-inflation-forecast/)
Inflation increased to 3.9 percent in May 2024, placing the country’s average inflation rate of 3.5 percent in the January-to-May period. (See: https://businessmirror.com.ph/2024/06/06/more-travels-noted-as-inflation-hits-3-9/)
However, the BSP noted that expectations of lower electricity rates and fruit prices could contribute in bringing down the rise in commodity prices. Cai U. Ordinario