The PHILIPPINE central bank expects The easing cycle could reverse bloodless household spending in a country where consumption makes up more than two-thirds of the economy.
“With the BSP’s policy easing taking effect, Filipinos can look forward to a more favorable economic environment,” said Marian Monette Q. Florendo, researcher and business analyst. Officer at Metropolitan Bank & Trust Co. (Metrobank), said in a report.
“The combination of lower policy rates and easingFThis development is expected to support both private consumption and investment, potentially reversing the unfavorable situationFconsequences of prolonged high interest rates,” she added.
The Bangko Sentral ng Pilipinas (BSP) Monetary Board cut borrowing costs by 25 basis points (bps) last month, bringing the policy rate to 6.25%, down from a 17-year high of 6.5%. This was the FIt is the first time in almost four years that interest rates have been lowered.
“This policy change is expected to have far-reaching consequencesFimplications for the Philippine economy, especially in stimulating private consumption and investment.”
Metrobank said there had been a “significant slowdown” in household consumption spending against the backdrop of high interest rates.
Growth in household spending, which accounted for 67.8% of Philippine economic output in the second quarter, slowed to 4.6% from 5.5% a year ago, according to the local statistics agency.
It was also the slowest growth since the 4.8% decline in the US Ffirst quarter of 2021.
Excluding pandemic years, Metrobank said this was the slowest spending pace since 2010. “This tepid growth is below the pre-pandemic 10-year average, indicating a subdued consumer spending environment,” Ms. Florendo said.
Further cuts in policy rates could serve as “a catalyst to revive the Philippine economy.”
Metrobank expects the benchmark interest rate to end the year at 5.75% and fall further to 5% next year.
“This is consistent with expectations that the US Federal Reserve will also begin its easing cycle in September,” it added.
Investors are pricing in a 42% probability of a 50 basis point rate cut at the Fed’s Sept. 17-18 meeting, up from 30%, Reuters reported, citing the CME FedWatch Tool.
Meanwhile, the BSP’s rate cut cycle could pave the way for lower credit card rates and affordable lending terms. This would “provide immediate relief to consumers burdened by high interest rates on credit card debt.”
“As policy rates decline, headline lending rates are likely to follow suit,” Ms. Florendo said. “This opens up opportunities for Filipinos to take advantage of this [themselves] of new loans at more favorable rates or to negotiate better conditions for existing loans.”
Lower interest rates on loans could free up cash flow for households, allowing them to pay off existing debts more quickly or rebuild their savings, she points out.
Metrobank expects inFThis year, interest rates will reach 3.3% and 3.1% in 2025, within the BSP’s target of 2-4%.
The forecast is supported by the expected easing of rice prices, supported by government policies and a balanced assessment of other factorsFrisks, it added.
InFInflation likely slowed to 3.7% in August, according to the average estimate of fifteen analysts in one Business world poll. In July, a nine-month high of 4.4% was reached. — Luisa Maria Jacinta C. Jocson