The Philippine central bank may lower its key interest rate by a total of 50 basis points this year as price risks moderate, Governor Eli Remolona said Thursday, after keeping it at a 17-year high for a fifth meeting.
The bangko Sentral ng Pilipinas could begin reducing the benchmark rate with a quarter-percentage point reduction as early as August, Remolona told reporters at an event, following a briefing where he announced the monetary policy decision. Another 25-basis point rate cut may follow, he said.
"We are actually somewhat less hawkish than before, which means we could ease" rates in the third or fourth quarter this year, Remolona said after the BSP left the target rate at 6.50 per cent, as expected by all 26 economists in a Bloomberg survey.
The governor's remarks follow softer US inflation data and a weaker Australia jobs market that may be setting the stage for a global easing cycle in the coming weeks and months. Nomura Holdings Inc. said in a note on Thursday that its "conviction level" for a Federal Reserve rate cut in July is rising.
Even if the BSP ends up cutting ahead of the Fed, Remolona soothed concerns about a downward pressure on the peso. "It's the forward guidance that's being watched, not the policy rate," he said, adding that the Fed may start easing in September.
In the Philippines, policymakers are anticipating that the worst of inflation is over while domestic demand has started to show strains from elevated prices and borrowing costs. The peso's gains eased to less than 0.1 per cent to 57.465 per dollar after Remolona's rate-cut remarks, from a 0.3 per cent rise before the decision.
The BSP's latest price outlook is more sanguine, revising down its risk-adjusted inflation forecast this year to 3.8 per cent from 4 per cent last month though it slightly raised expectations for 2025. Still, accelerating Philippine inflation as of April is keeping analysts including at Bloomberg Economics cautious, expecting monetary easing to commence only after price risks have firmly ebbed.
"Any future possible Fed rate cuts, especially in the latter part of 2024, could be matched locally to maintain healthy interest rate differentials," Rizal Commercial Banking Corp. economist Michael Ricafort said in a note. That could help stabilize the peso as well as import prices and overall inflation, he said.
"Despite this recent shift in tone from the previously hawkish Remolona, we hold on to our previous expectation that the BSP can only cut policy rates ASAF, or As Soon As the Fed (does)," said ING Groep NV's Nicholas Mapa. "Given ING's house call that the Fed will cut policy rates by September, we expect BSP to begin its easing cycle at their October meeting should inflation continue to trend lower."
What Bloomberg Economics Says...
Whether it will start cutting rates as soon as August "- as it signaled it might at Thursday's meeting "- will hinge on three considerations: One, the Federal Reserve cutting rates by then; two, domestic demand continuing to soften; and three, inflation continuing to cool."-Tamara Mast Henderson, Asean economist
Once the BSP starts easing, it may also consider resuming reductions in banks' reserve requirement ratio, Remolona said Thursday.
