THE BANGKO SENTRAL ng Pilipinas (BSP) may deliver a fourth straight 25-basis-point (bp) rate cut on Thursday to give the economy a boost as inflation remains low, Nomura Global Markets Research said.
“We expect BSP to cut its policy rate by another 25 (bps) to 4.75% as the still-benign inflation outlook allows BSP to continue to focus on supporting domestic demand, which is also now facing more significant downside risks than was the case during the Monetary Board (MB) meeting in August,” Nomura China economist Jing Wang said in a report dated Oct. 3.
“We assign a 60% likelihood to our forecast and 40% to BSP leaving the policy rate unchanged, taking into account BSP’s previous ‘Goldilocks’ signal and the possibility that BSP could adopt a wait-and-see approach to assess the downside risks to growth, citing elevated uncertainty,” he said.
The Monetary Board will hold its penultimate meeting for this year on Thursday (Oct. 9), where 10 out of 16 analysts polled by BusinessWorld expect a pause due to emerging inflation risks.
On Aug. 28, the BSP slashed benchmark borrowing costs by 25 bps for a third straight meeting to bring the policy rate to 5%. This brought cumulative cuts since August 2024 to 150 bps.
BSP Governor Eli M. Remolona, Jr. earlier said the policy rate is now at their “Goldilocks” rate or “sweet spot” for both inflation and output, but he left the door open to one more reduction within this year to support the economy if needed, which would likely mark the end of its easing cycle.
Mr. Wang said Philippine headline inflation could have picked up to 1.8% in September from 1.5% in August. If realized, this would still be below the 1.9% seen in the same month a year ago and the BSP’s 2-4% annual target.
“The pickup is mainly due to low base effects: on a sequential basis, we expect a drop to 0.2% (month on month) from 0.5%, helped by lower rice and energy prices, as well as stable core inflation, given limited demand-pull pressures,” he said.
The Philippine Statistics Authority will release September inflation data on Tuesday (Oct. 7).
Mr. Wang said the BSP could also consider the potential economic impact of corruption allegations involving government infrastructure projects in its policy decision.
“At the same time, the ongoing controversy around flood-control projects will likely be assessed by BSP as potentially leading to a slowdown in government capex (capital expenditure) disbursements, therefore posing downside risks to the (gross domestic product) growth outlook at a time when BSP still sees the output gap as negative.”
The economy grew by 5.4% in the first half, slower than 6.2% a year earlier and a tad below the government’s 5.5%-6.5% target.
PAUSEMeanwhile, Jean O. De Castro, Manulife Investment Management and Trust Corp. head of Fixed Income, said the BSP could opt to pause at this week’s meeting but cut at its last review for the year scheduled on Dec. 11.
“Given the impact of typhoons on food supply, and the peso’s recent breach of 58 (per US dollar), we can expect the MB to adopt a cautious stance and pause at the upcoming October 9 meeting,” she said. “However, with inflation generally contained and liquidity conditions manageable, the BSP could cut policy rate one more time in December, if economic momentum weakens or if the US Federal Reserve eases further.”
The peso sank to the P58 level against the greenback late last month as market sentiment was affected by mixed bets on the Fed’s policy path and the ongoing corruption scandal in the Philippines.
Ms. De Castro said a pause this week would support the yield curve.
“On the other hand, a surprise cut could result in a flattening of the yield curve, encouraging more demand for longer-dated bonds and supporting loan growth, but may also heighten sensitivity to the currency and food price risks,” she said.
“Overall, the MB’s cautious approach reflects a desire to preserve policy flexibility and anchor financial stability amid lingering local and global uncertainties.” — Katherine K. Chan