MONETARY authorities will likely order another 25-basis point (bps) rate cut this Wednesday given slowing inflation, analysts polled by The Manila Times said.
Consumer price growth fell to a four-year low of 1.9 percent last month, markedly lower than August’s 3.3 percent and beating market expectations. It brought the year-to-date figure to 3.4 percent — well within Bangko Sentral ng Pilipinas’ (BSP) 2.0- to 4.0-percent target.
Emmanuel Lopez from the University of Sto. Tomas Graduate School said that following August’s 25-bps reduction, an identical cut is likely this Wednesday due to September’s “low inflation rate.”
He added that the “continued stability of prices” had contributed to the peso’s gaining against the dollar.
Philippine National Bank economist Alvin Arogo echoed this, saying that “lower-than-expected September inflation supports the continuation of monetary easing.”
Union Bank of the Philippines Chief Economist Ruben Carlo Asuncion also shared this view, noting that the latest inflation data, along with the possibility of weak demand, likely contributed to the subdued consumer price outlook.
“We believe there is scope for our CPI (consumer price index) given the food price slippage, and waning electricity rate hike effects, to absorb higher imported inflation due to recent oil price adjustments,” he added.
Sun Life Investment Management and Trust Corp. economist Patrick Ella also expects the BSP to cut rates by 25 bps this month and by another 25 bps in December, for 75 bps of cuts for the year, also due to slowing domestic inflation and continued Fed easing.
He noted, however, that risks such as oil supply shocks due to geopolitical tensions and food supply disruptions caused by weather could slow the pace of rate cuts.
If the risks are avoided, Ella expects a total of seven rate cuts over 2024-2025 amounting to 175 bps.
Bank of the Philippine Islands senior economist Emilio Neri, meanwhile, said the BSP could opt for a modest 25-bps cut rather than a more aggressive 50-bps reduction given the need for a more cautious approach.
“Headline inflation is expected to remain within or even below target in the coming months due to favorable base effects and the improving outlook for food supply, especially for rice,” he noted.
Recent experience has shown that supply disruptions can easily occur in this environment, Neri continued, hence a “gradual reduction in the policy rate would help the economy withstand the impact of these risks in case they materialize.”
“A more conservative policy path for BSP interest cuts may thus be necessary to restore the strength of the economy’s external position. Maintaining a positive interest rate differential helps the BSP rebuild its foreign reserves.
“It also helps in maintaining a certain degree of stability in the FX (foreign exchange) market, which is necessary to avoid meaningful pass-through to inflation or, on the other extreme, currency competitiveness.”
Pantheon Macroeconomics economist Miguel Chanco also expects a “normal” 25-bps rate cut.
He believes the BSP will avoid a larger cut for now as monetary policy has effectively already loosened significantly with a sizable reduction in bank reserve requirements.
He projected that in December, the BSP would increase the pace of easing to 50-bps per meeting.
Chinabank Research also said that the central bank was likely to opt for a “small cut” given external conditions.
“Easing inflation and the Fed’s 50-bp rate cut last month should provide room for the BSP to continue lowering interest rates this month,” it said.
“However, the BSP may opt for a small cut, mindful of the impact of geopolitical tensions in the Middle East on the inflation outlook, the recent depreciation of the peso against the US dollar, and the repricing of Fed rate cut expectations.”
Central bank Governor Eli Remolona Jr. has said even if some risks materialize, inflation was likely to remain within target over the medium term, averaging 3.3 percent this year, 2.9 percent in 2025 and 3.3 percent the year after that.
In a magazine interview published last week, he said that “with inflation now on a target-consistent path, we have room for a calibrated shift to a less restrictive monetary policy stance.”
While another 25-bps rate cut will only put the BSP level with the US Federal Reserve, which last month announced a jumbo 50-bps reduction and could again cut next month, Remolona has said that 50 bps will only be considered if the economy was at risk of a hard landing — a marked slowdown.
Gross domestic product growth hit 6.0 percent as of the end of the first semester, at the bottom end of the government’s 6.0- to 7.0-percent target for 2024, and economic managers have expressed optimism that the goal will be met.
Benchmark rates currently stand at 6.25 percent after the BSP’s policymaking Monetary Board kickstarted an easing cycle in August via a 25-bps cut.
This week’s meeting has been moved up from Thursday, which is when the Monetary Board normally holds its rate-setting meetings, due to a scheduling issue.
The final meeting for 2024 will be held on December 19.
The US central bank remaining meetings for this year, meanwhile, will be on November 6-7 and December 17-18.
With US inflation having come in higher than expected last month, markets expect the Fed to shift to a smaller 25-bps rate cut in November.
