By means of Luisa Maria Jacinta C. Jocson, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) cut on Thursday policy interest rate for the first time almost four years in the midst of an improvisationinflation outlook.
The Monetary Board on Thursday cut the target reverse repurchase (RRP) rate by 25 basis points (bps) to 6.25%, from a 17-year high of 6.5%. This was in line with the expectations of nine of the sixteen analysts surveyed Business world poll from last week.
The rates on overnight deposits and credit facilities were also reduced to 5.75% and 6.75% respectively.
This was the FThe first time the BSP cut rates in almost four years, or since November 2020, when it last made a 25 basis point cut during the coronavirus (COVID-19) pandemic.
“With inflation on a consistent path, the current macroeconomic outlook supports a calibrated shift toward a less restrictive monetary policy,” BSP Governor Eli M. Remolona Jr. said at a brief meeting.Fing.
He said the BSP “remains aware of the ongoing upside risks to prices.”
“The balance of risks for the inFThe outlook for 2024 and 2025 continues to trend downward, with a modest increase to the upside for 2026,” Mr Remolona said.
The BSP has adjusted its baseline forecasts to 3.4% for 2024 (from 3.3% previously), 3.1% for 2025 (from 3.2% previously) and 3.2% for 2026 (from 3.3% previously ).
It also revised its risk-adjusted inflation forecasts for 2024 to 3.3% (from 3.1% previously) and 2.9% for 2025 (from 3.1%). The risk-adjusted forecast for 2026 was set at 3.3%.
Despite inFGrowth accelerates to 4.4% in July, Mr Remolona saidFGrowth is expected to decline to within the government’s target range of 2-4%.
“The downside risks are mainly related to lower import tariffs on rice, while the upside risks could come from higher electricity tariffs and external factors,” he added.
In June, President Ferdinand R. Marcos Jr. that rateFThe f on rice imports will be reduced from 35% previously to 15% until 2028.
Rice in itFling, which accounts for almost half of the total inFInterest rates fell from 22.5% a month earlier to 20.9% in July. This marks the fourth month in a row of slower riceFlat.
Mr Remolona also pointed out the impact of the latest economic growth figures on the decision to ease interest rates. The economy grew 6.3% in the second quarter, faster than 5.8% in the previous quarter and 4.3% a year ago.
“We are a bit more conFidentical in the inFGross Domestic Product (GDP) figures are falling, then Gross Domestic Product (GDP) figures are rising,” he said.
“Consumption was relatively weak. So it doesn’t look like something that can be easily maintained. And so, partly because of that, we started cutting back.”
Household consumption, which makes up about three-quarters of the economy, fell to 4.6% in the second quarter from 5.5% a year ago.
“Despite tight financial conditions, GDP growth has been solid in the second quarter and unemployment has fallen. Public investments, in addition to easing price pressures and robust labor conditions, are expected to support economic activity,” Mr Remolona added.
OUTLOOK
Meanwhile, the BSP chief announced a further cut of 25 basis points for the rest of the year.
“My views are consistent with a 25 basis point cut today and another 25 basis points sometime during the year, in October or December. And we will see what happens in 2025,” Mr Remolona said.
“By the way, the most relevant policy horizon for us is actually 2025 when we look at inflation, because there are long lags in the transmission mechanism of monetary policy. The decision we made today (Thursday) will mainly aFfect 2025,” he added.
The remaining policy-setting meetings of the Monetary Board are on October 17 and December 19 this year.
Mr Remolona said he also expects the US Federal Reserve to start cutting interest rates next month.
“Possibly 50 basis points in September and then 100 basis points until the end of 2024. And maybe another 125 basis points in 2025,” he said.
Mr. Remolona noted the impact of the interest rate differential once the Fed starts cutting rates.
“That would mean a broader diFferential. You know, the (American) policy rate is below our policy rate. But if they cut back more than we do, then the diFferential will be even wider. That could put some pressure on the peso. But given that the peso has already appreciated, that is not a problem.”
Mild US insideFThis week’s figures have boosted hopes that the Federal Reserve will cut US borrowing costs in September FThe first time in four and a half years, Reuters reported.
Mr Remolona said the central bank is trying to avoid any off-cycle moves. “OFF-cycle decisions are about whether you think you’ve fallen behind, or whether you think you’re in for a hard landing. Otherwise we avoid oFf-cycle decisions.”
BIGGER CIRCUMSTANCE?
Meanwhile, Gareth Leather, senior Asia economist at Capital Economics, said he expects a 25 basis point cut each at the last two Monetary Board meetings of this year.
“InsideFWith the economy set to contract further and growth likely to be difficult, we expect another 50 basis points of cuts before the end of the year,” he said in a note.
Easing price pressure will help strengthen the BSP’s decision to further cut rates, Mr Leather said.
“We expect insideFwill fall back to the goal on the back of Bene in AugustFical basis eFfects and remain low for the rest of the year. If we are right, this should put the central bank in troubleFTherefore, the policy should be further relaxed in the coming months,” he said.
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics said that with the Fed also expected to begin its easing cycle, this could give the BSP room to make bigger rate cuts.
“We now see the Governing Council cutting by another 25bp each in October and December, although the chances of much larger moves of 50bp, especially in December, are likely to increase if we are right about the Fed pursuing more aggressive easing in the coming years. fourth quarter,” he said in a note.
The BSP may continue to cut interest rates next year as well, he added.
“All told, the BSP will have much more room for more rate cuts next year; our inFThe annual average is forecast to decline further from 3.5% this year to 2.5% in 2025, compared to 6% in 2023,” Mr Chanco said.
“The urgency and responsibility for the BSP to provide some support to the economy is clear, especially now that fiscal policy remains constrained by lagging consolidation.Ffortresses from the pandemic-era budget crisis.”