THE Bangko Sentral ng Pilipinas (BSP) will likely match the US Federal Reserve (Fed) and order a 50-basis-point rate cut later this month, a Fitch Solutions unit said.
The US central bank could reduce its policy rate by a total of 125 basis points (bps) this year, BMI Research said on Tuesday, which would give the BSP added room to ease policy.
The BSP acted ahead of the Fed in August, ordering a 25 bps cut that BMI said was a sign “that policymakers are starting to grow increasingly concerned about the economy’s health.”
“Indeed, the authorities stated that economic growth could fall below the government’s target in 2025 and 2026 in its accompanying monetary statement,” it added.
BMI, which initially expected two 25 bps cuts by the BSP this year, said a 50 bps cut will likely be delivered on October 16.
With the economy “in need of support … policymakers will likely seek to unwind restrictive policy settings to bolster growth at the earliest possible time,” it said.
Another 50 bps cut by the Fed in December could prompt the BSP to again act, and BMI said “we now think that the BSP will lower the policy rate to 5.50 percent in 2024 and 4.50 percent in 2025.”
August’s rate cut brought the BSP policy rate to 6.25 percent.
“If we are right, nominal interest rate differentials between the two countries will be maintained at current levels of around 125 bps” by year-end, BMI said.
With the terminal rate seen at a pre-pandemic level of 4.50 percent by end-2025, the BSP will have been cut by a total of 200 bps.
The Fed, meanwhile, is expected to cut by a total of 250 bps, which would bring the interest rate differential to 150 bps between both countries.
“That said, upside risks to our interest rate forecast are apparent,” BMI said, adding that “while we are confident that the BSP will continue to loosen policy, we are less sure of its magnitude.”
“The October meeting could very well conclude with just a 25 bps cut if policymakers adopt a more cautious approach toward easing following cuts in the reserve requirement ratio.”
The forecast for the BSP is hinged on the Fed’s interest rate trajectory, BMI stressed.
“If the Fed chooses to cut by 25 bps in December instead of 50 bps, the BSP could stand pat in December,” it said.
