BSP likely to continue rate cut in December—Oxford Economics

The Bangko Sentral ng Pilipinas (BSP) will likely maintain an easing bias and further reduce its policy rate in December, with inflation well anchored and growth momentum softening, according to Oxford Economics.

“We expect another 25-basis-point rate cut to 4.5 percent in December, though higher-than-expected inflation could delay the cut,” Oxford Economics said.

It made the forecast after the BSP slashed its key policy rate by 25 basis points (bps) at Thursday meeting to 4.75 percent, marking its fourth consecutive rate cut this year.

The BSP’s decision was driven by concerns over a weakening growth outlook, with well-anchored inflation expectations providing the necessary space for more accommodative policy.

Oxford Economics said the move continues the BSP’s easing cycle, which is intended to shore up economic growth.

The BSP expressed concern that business confidence has deteriorated due to governance issues in public infrastructure spending.

Widespread protests in September over alleged corruption in flood control projects have eroded public trust and weighed on investment sentiment, a factor compounded by persistent external headwinds dampening growth prospects.

This gloomier economic outlook necessitates a more accommodative monetary policy, the BSP said.

Inflation remains subdued and well within the BSP’s 2 percent to 4 percent target range. Headline inflation increased slightly to 1.7 percent year-on-year in September from 1.5 percent year-on-year in August.

Meanwhile, core inflation edged down marginally to 2.6 percent year-on-year from 2.7 percent year-on-year in August.

Rice prices continued to decline year-on-year. The BSP expects inflation to remain contained in the near term, although it noted upside pressure from potential higher rice tariffs and electricity rate adjustments.

The peso has also come under renewed depreciation pressure since late September, breaching 58 per US dollar and weakening by about 2 percent over the month. Although the BSP does not explicitly target the exchange rate, the pass-through effect of a weaker peso on inflation remains a concern for the central bank, Oxford Economics said.