By means of Luisa Maria Jacinta C. Jocson, Reporter
The US Federal Reserve’s long-awaited rate cut paves the way for the Bangko Sentral ng Pilipinas (BSP) to continue its own easing path, analysts said.
“The now highly anticipated new US monetary stance could actually provide the BSP with more room to ease domestic liquidity, expand domestic liquidity and stimulate growth,” said Diwa C. Guinigundo , country analyst for the Philippines from GlobalSource Partners, in a Viber message.
The U.S. central bank kicked off an expected series of interest rate cuts on Wednesday with a larger-than-normal cut of half a percentage point, which Federal Reserve Chairman Jerome H. Powell said was intended to show policymakers’ commitment to a maintain low unemployment. Now rate thatFThe situation has eased, Reuters reports.
“We’re off to a good, strong start, and I’m very happy that we’ve done that,” Mr. Powell said at a news conference after the Fed, citing increased confidence that the country had moved beyond high inflation, cut its key rate. by 50 basis points (bps) to the 4.75%-5% range. “The logic of this, both from an economic and risk management perspective, was clear.”
In addition to approving the half-percentage-point cut on Wednesday, Fed policymakers predicted that the benchmark interest rate would fall another half-percentage point by the end of this year, a full percentage point next year and a half-percentage point next year. percentage point in 2026.
“With the Fed cutting by 50 basis points, the BSP has more than enough room to cut its target reverse repurchase (RRP) by 25 basis points in October, while inflation may fall to 2.3% in September,” Metropolitan Bank & Trust Co. ) Chief Economist Nicholas Antonio T. Mapa said of X.
Last month, the Monetary Board cut the RRP rate by 25 basis points from 6.5% to 6.25% over the past 17 years. This was the first time in almost four years that the BSP cut rates.
BSP Governor Eli M. Remolona Jr. has said the central bank could implement another 25 basis point interest rate cut in the fourth quarter. The remaining Monetary Board meetings this year are scheduled for October 17 and December 19.
Patrick M. Ella, an economist at Sun Life Investment Management and Trust Corp., said the BSP would likely cut by at least 25 basis points at its meeting next month.
“I expect another 25bp cut (at least) in the next meeting because if the Fed hikes another 50bp, the BSP will have to match the size of the cut to keep the expected strength of Asian currencies from the cut by tame the Fed. cycle,” he said in an email.
Mr Ella said that if the Fed continues the pace of 50bp cuts, the BSP may have to follow suit.
The Fed has kept its policy rate in the 5.25%-5.5% range since last July, when it ended an 18-month rate hike campaign aimed at controlling a rise in inflation , which rose to a 40-year high in 2022, Reuters reports.
Interest rate futures traders eased even further than forecast by the Fed, with the policy rate now expected to be between 4% and 4.25% by the end of this year.
Mr Mapa said the “door is wide open” for the BSP to implement further policy easing in October and cut reserve requirements (RRR) in the near term.
He noted that if the BSP were to hold rates steady in October, the Fed would still hold two meetings between the December Monetary Board meeting. “It makes perfect sense for BSP to reduce taxes earlier,” he added.
The last two Federal Open Market Committee (FOMC) meetings this year are scheduled for November 6-7 and December 17-18.
Emilio S. Neri, Jr., chief economist of the Bank of the Philippine Islands (BPI), said the BSP has room to cut the benchmark interest rate two more times this year, but predicts only one rate cut.
“Most activity indicators remain robust even if the policy rate is close to 6% and the Monetary Board needs to meaningfully cut the RRR and build up its gross international reserve buffer (GIR) while it still has room to do so,” he said .
“With regard to GIR accumulation, the BSP may likely become as aggressive as the FOMC in cuts if our GIR is brought closer to the Philippine economy’s $130 billion foreign debt,” he added.
Foreign debt reached a record $130.182 billion at the end of June, up 10.4% from a year ago.
Gross dollar reserves rose 0.18% to $106.92 billion at the end of August, from $106.74 billion at the end of July. This was the highest level of dollar reserves in 29 months or since the $107.3 billion in March 2022.
“The BSP has not been able to build its GIR significantly since the rate hike cycle in mid-2022. The start of the US easing cycle opens the door as long as we have a comfortable spread between the Philippine and US policy rates,” Mr Neri said.
He also noted that the latest macroeconomic data shows “robust economic activity,” citing declining inflation, strong employment numbers and double-digit credit growth.
Headline inflation slowed in August from 4.4% in July to 3.3% in August.
“The current Monetary Council appears to be in no hurry to cut rates as it will also need to proactively accommodate the planned ‘substantial reduction’ in our RRR and rebuild a larger GIR buffer given the rapid expansion of external interest of the land. debt,” Mr Neri added.
Mr Guinigundo also pointed out the risk of further interest rate cuts and reductions in the reserve rate.
“The only challenge I could foresee is the possible revival of price pressure due to higher liquidity, especially if the RRR is reduced by a few hundred basis points,” he added.
Mr. Remolona said this week that the BSP plans to “substantially” reduce its reserve requirement this year.
In June 2023, the central bank cut the ratio for large banks and non-bank financial institutions with quasi-banking functions by 250 basis points to 9.5%.
The BSP chief earlier said that the RRR should be reduced to just 5%. — of Reuters