BMI, a Fitch Solutions company, said Thursday it expects the Bangko Sentral ng Pilipinas to reduce interest rates by the second half of 2024.
“The bank’s next move will be a cut. But we only expect it to materialize in the second half when other major central banks in the world begin loosening financial conditions,” BMI said.
“However, if inflation in the US were to surprise to the upside, the Fed would push back the timing of its easing cycle. And the BSP would likely follow suit,” it said.
The Monetary Board, the policy-making body of the BSP, kept the overnight borrowing rate steady at 6.5 percent for the fourth consecutive policy meeting since October 2023.
It also maintained the interest rates on overnight deposit and lending facilities at 6.0 percent and 7.0 percent, respectively.
BMI said the BSP was expected to stand pat at its upcoming meeting on May 16.
“We forecast inflation to average 3.9 percent in 2024. This implies that consumer prices will fluctuate around the 4 percent mark over the coming months especially as the impact of the El-Nino phenomenon continues to feed through,” BMI said.
“While we expect growth to quicken to 6.2 percent in 2024 from 5.6 percent in 2023, that crucially remains below the pre-pandemic average of 6.6 percent in 2015 to 2019,” it said.
BMI said that in the absence of external constraints, the BSP would want to cut interest rates as soon as possible to push growth back to trend levels.
London-based Oxford Economics earlier said it expects the BSP to start cutting its interest rate later than earlier anticipated.
“Given upside domestic inflation risks as well as chances that the US Fed might delay its easing cycle, the risk for BSP is tilted to a later start of the rate cuts,” it said.
Oxford Economics said the BSP would also likely remain cautious of the peso’s movement amid broad US dollar strength. The peso’s performance is generally on par with the regional average so far this year, but the Philippines’ twin deficit status makes the currency vulnerable to sudden movements in the face of risk-off sentiment, it said.