By means of Luisa Maria Jacinta C. Jocson, Reporter
THE BANGKO SENTRAL ng Pillipinas (BSP) is likely to concontinue the easing cycle with a new rate cut of 25 basis points (bp). meeting on Wednesday, analysts said.
A Business world A poll last week showed that 16 out of 19 analysts expect the Monetary Board to cut rates by 25 basis points at its October 16 policy review meeting.
If realized, this would bring the target reverse repurchase rate to 6%, up from the current 6.25%.
On the other hand, two analysts expect the central bank to cut rates by 50 basis points, while one expects the BSP to leave the policy rate unchanged on Wednesday.
The Monetary Board started its easing cycle in August with a 25 basis point cut FIt cut financing costs for the first time in almost four years.
“I expect the Governing Council to cut even further (this) week, by another 25 basis points. This is especially the case in the wake of the extremely soft September data, which undershot expectations, including the BSP’s own forecasts,” Miguel Chanco, Pantheon’s head of emerging economies, said in an email.
Mr. Chanco said the decision to make cuts will be “fairly ‘easy’” as the BSP “has so much room to continue normalizing policies without risking going overboard, given how quickly and how muchFInflation has fallen in recent months.”
Patrick M. Ella, an economist at Sun Life Investment Management and Trust Corp., said growth is slowingFThis is a “strong argument” for the BSP to cut interest rates.
Headline inflation fell sharply from 3.3% in August to 1.9% in September. This was also the slowest print in more than four years or since the 1.6% clip in May 2020.
“Better yet, insideFThe food became lighter in the heavily weighted food basket on the back of the lower tariFfs on rice. This gives BSP the certainty thatFThe economy is back in the bottle and will remain on track in the coming months,” said Sarah Tan, economist at Moody’s Analytics.
Eat insideFGrowth fell from 4.2% in August to 1.4% in September and 10% a year ago.
Nomura Global Markets Research Chief ASEAN economist Euben Paracuelles said easing inflation “will enable the BSP to further reduce the restrictiveness of its monetary policy in a measured manner.”
“The lower than expected SeptemberFThis supports the continuation of monetary easing,” Philippine National Bank economist Alvin Joseph A. Arogo added.
Zamros Bin Dzulkafli, senior economist at Maybank Investment Banking Group, said markets expect inflation to remain within ranges in the coming months due to interest rates.Ff cuts in rice imports and India’s decision to lift the export ban on non-basmati milled rice.
“Come inFThe situation is expected to remain within or even below target in the coming months as a result of the favorable basis eFfects and the improving outlook for food supplies, especially rice,” said Emilio S. Neri, Jr., chief economist of the Bank of the Philippine Islands.
In the Ffirst nine months of the year, head onFaverage 3.4%. This was also the BSP’s annual forecast.
BSP Governor Eli M. Remolona, Jr. said that earlierFThe lation is now on a ‘goal-consistent path’, allowing it to shift to a less restrictive policy stance.
“With the latest CPI and the likelihood that subdued demand has contributed to these benign developmentsFBased on estimates, we believe the BSP has room to cut another 25 basis points at the next Monetary Council meeting,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc.
“We believe there is room for our consumer price index (CPI), given falling food prices and the waning effects of electricity tariff increases, to absorb higher imported inflation from recent oil price adjustments,” he added.
GRADUAL ENLIGHTENMENT
Although the central bank will continue to cut interest rates, analysts say this will likely happen gradually.
“However, the BSP could opt for a small cut, considering the impact of geopolitical tensions in the Middle East on the economy.Foutlook, the recent depreciation of the peso against the US dollar, and the repricing of the Fed’s expectations for rate cuts. Moreover, BSP Governor Remolona hinted at promoting a gradual pace of interest rate cuts,” according to China Bank Research.
The Monetary Board would likely opt for a rate cut of 25 basis points over 50 basis points, Mr Remolona said earlier, as the latter would be more appropriate.prepared for a ‘hard landing’ scenario.
Mr Neri said the BSP is also likely “to opt for a modest 25 bp rate cut rather than a more aggressive 50 bp cut.”
“Although inflation slowed to 1.9% in September, there are several factors that justify a more cautious approach,” Mr Neri added.
Chinabank Research also noted risks to the inFoutlook, citing rising global oil prices.
“Therefore, the BSP may decide to make minor cuts at next week’s meeting to mitigate the impactFlationary pressures, especially as higher oil prices could lead to second-order effects,” said Chinabank Research.
“The risks we see here are oil supply shocks (in the form of geopolitical outbursts) and food-related supply disruptions (such as weather) that will interrupt the BSP’s pace of austerity,” Mr Ella added.
Mr. Asuncion said they had reviewed itFIt is expected that this year will be 3.2% and next year 2.5%.
“Warning about this benign inFThe outlook is the risk of an event in the Middle East, with the escalation of hostilities between Israel and Iran, which could sustain oil price volatility and the renewed strength of the US dollar,” he added.
Mr Neri also mentioned other risks that could lead to supply disruptions, such as the La Niña weather event and a spike in African swine fever cases.
The latest bulletin from the state weather bureau shows that there is a 71% chance that La Niña will form in the September-November season and will likely last until fall. Ffirst quarter next year.
“A gradual reduction in policy rates would help the economy withstand the impact of these risks, should they materialize,” Mr Neri added.
“Among the factors for this possible decision include Philippine inflation remaining well within target, resilient gross domestic product (GDP) growth and expectations that the Fed will gradually cut interest rates by 25 basis points next month,” said vice president and head of Security Bank’s research division. Angelo B. Taningco said.
Ms Tan said the Fed’s 50bp rate cut also gives the BSP room to further cut the policy rate.
Recent economic growth also paves the way for more calibrated rate cuts.
“Recent economic activity and emerging growth prospects also suggest that aggressive monetary easing is not necessary,” Mr Neri said.
Philippine GDP grew 6.3% in the second quarter, the fastest growth ever Ffive quarters or since the 6.4% in the Ffirst quarter of 2023.
“Election-related spending, better weather and lower inflation in the coming months are likely to provide the basis for more solid growth rates, reducing the need for massive interest rate cuts,” Neri added.
PESO
Meanwhile, Chinabank Research also noted that the BSP will take into account the recent devaluation of the peso.
“This month, the peso depreciated again against the US dollar, to the P57 level, as markets withdrew expectations of another 50 basis point cut by the Fed this year after a strong jobs report and as theFLegislation in the Middle East remains at risk of further escalation,” the report said.
The local unit closed at P57.205 per dollar on Friday, up 15.5 centavos from P57.36 Foff Thursday. However, week on week, the peso fell by 91 centavos from P56.295 Fend on October 4.
“Several Fed officials, including Chairman Powell, have expressed support for a more gradual pace of easing after their initial 50 basis point cut in September,” Chinabank Research said.
“A 25 basis point cut by the BSP next week would raise interest rates by TuesdayFThere is a tension between the BSP and Fed policy rates of 100 basis points, putting less downward pressure on the peso,” it added.
Meanwhile, Oikonomia Advisory & Research, Inc. said. that they expect a decline of 50 basis points this week because of the “significant slowdown in the economy”Flation (gives) BSP a longer runway to reduce rates.”
Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., also sees a 50 basis point cut to accommodate the Fed’s latest rate cut.
“By aligning all Fed rate cuts at once to maximize monetary easing and support economic growth,” he said in an email.
On the other hand, Jonathan L. Ravelas, senior adviser at professional services firm Reyes Tacandong & Co., said the BSP could keep rates steady and opt to cut by 25 basis points later in December, citing inflation risks such as the recent cut in reserve requirements, election-related expenses and higher fuel prices.
Mr Ravelas said the relaxation should be implemented “slowly but surely”. Ffell short of October’s possibilityFthat exceeds the 3% level.