The Bangko Sentral ng Pilipinas (BSP) is expected to cut interest rates more aggressively in the coming months, according to BMI, a unit of Fitch Solutions.
“Crucially, we now forecast the Fed to cut by a total of 125 basis points in 2024,” BMI said in a report. “On this projection, we think that the BSP will have more policy room to maneuver with a 100-basis-point cut of its own.”
The BSP’s Monetary Board on Aug. 15, 2024, slashed its overnight borrowing rate by 25 basis points to 6.25 percent. The interest rates on the overnight deposit and lending facilities were also reduced to 5.75 percent and 6.75 percent, respectively.
BMI said the BSP would continue its easing cycle going into 2025, with a 75-basis-point adjustment in October and December.
“The BSP’s decision to lower interest rates ahead of the Fed is a sign that policymakers are starting to grow increasingly concerned about the economy’s health,” BMI said. “Indeed, the authorities stated that economic growth could fall below the government’s target in 2025 and 2026 in its accompanying monetary statement.”
BMI said the BSP would likely deliver a half-point cut at its upcoming meeting on Oct. 17, 2024.
“We have highlighted that the economy is in need of support following the second-quarter GDP data,” BMI said. “The boost received from a surge in investment activity will prove difficult to sustain against the backdrop of high interest rates.”
“In the face of an economic slowdown, policymakers will likely seek to unwind restrictive policy settings to bolster growth at the earliest possible time,” it said.
BMI said conditions are ripe for further easing as inflation had become less of a concern. “At 3.3 percent in August, the headline figure is now comfortably within the central bank’s target range of 2 to 4 percent,” it said.
“While we are confident that the BSP will continue to loosen policy, we are less sure of its magnitude,” BMI said. “The October meeting could very well conclude with just a 25-basis-point cut if policymakers adopt a more cautious approach towards easing following cuts in the reserve requirement ratio.”
“Our BSP forecast hinges on the Fed’s interest rate trajectory,” it said. “If the Fed chooses to cut by 25 basis points in December instead of 50 basis points, the BSP could stand pat in December.”.
