The Bangko Sentral ng Pilipinas (BSP) may slash interest rates by up to 100 basis points by end-2024 on manageable inflation and global monetary policy adjustments, Finance Secretary Benjamin Diokno said Tuesday.
“We observe what’s happening abroad principally, what’s happening at the Fed [US Federal Reserve], so a 75 basis points cut by the Fed this year could actually be matched by the central bank by 100 basis points,” Finance Secretary Benjamin Diokno said in an interview with Bloomberg TV.
“I see like 5.5 percent [policy rate] by the end of 2024. The timing of course will be data dependent and probably towards the second semester,” he said.
The policy-making Monetary Board kept the overnight borrowing rate unchanged at 6.50 percent and the overnight deposit and lending facilities at 6.0 percent and 7.0 percent in its final meeting in 2023.
Diokno said that inflation rate might increase slightly in the second quarter because of the base effect, but “for the whole year of 2024, it would be within the target band of 2 to 4 percent and that’s good news.”
Inflation averaged 6 percent in 2023, faster than 5.8 percent in 2022. It was also higher than the target range of 2 percent to 4 percent for the year, but within the Development Budget Coordination Committee (DBCC) assumption of 5 percent to 6 percent.
BMI, a Fitch Solutions company, echoed Diokno’s projection as it anticipated a 75 bps interest rates cut by the second half of 2024. BMI said the possible rate cuts would be line with its expectations with the Fed’s adjustments.
“Similar to our expectation for the US Fed, we think that cuts will materialize only in the second half. A pre-emptive return to monetary loosening could not only de-anchor inflation expectations but also weaken the Philippine peso,” BMI said.
BMI said the risks of its interest rate forecasts are skewed towards further tightening.
Bank of the Philippine Islands said in a report the BSP might keep its rates steady in the first half of 2024, taking into account a possible inflation rebound in the second quarter. “Rate cuts are possible in the second half of the year once inflation is firmly within the target of the central bank. However, the timing of future rate cuts and their magnitude are also contingent on what the Federal Reserve will do,” it said.
“If local inflation conditions are right, the BSP will likely respond immediately with rate cuts once the Fed begins its easing cycle. On the other hand, it might be difficult for the BSP to cut its policy rate without any rate cuts from the Fed given the substantial current account deficit of the country. This might lead to dollar outflows that could lead to sizeable exchange rate volatility,” BPI said.
“So far, Fed officials have signaled the possibility of rate cuts amounting to 75 bps in 2024. We also expect a 75 bp cut from the BSP this year, which will bring the policy rate to 5.75 percent by end-2024,” BPI said.
BPI said it also expects the Philippines to maintain its position as one of the fastest growing economies in the region, with a full year growth rate of 6.2 percent in 2024.
