Analysts anticipate gradual easing cycle

THE Bangko Sentral ng Pilipinas (BSP) policymaking body Monetary Board is expected to be more data-dependent in deciding future rate cuts with the easing cycle anticipated to be gradual, analysts said.

“We believe monetary policy moving forward will now be more data-dependent, wherein each incremental rate cut will depend on what direction inflation goes relative to expectations,” HSBC Global Research economist Aris Dacanay said.

“Key here will be to watch the movement of rice prices, both global and domestic,” Dacanay added.

The Monetary Board slashed the key rates by 25 basis points (bps) to 6.25 percent last Thursday, ending the 17-year high of 6.5 percent.

Overnight deposit and lending facilities were accordingly adjusted to 5.75 percent and 6.75 percent, respectively.

Dacanay explained that the BSP was likely able to implement gradual policy rate cuts since growth conditions remain stable while the labor market remains robust, with employment surpassing demographic expectations.

While high interest rates and inflation have dampened consumption momentum, leading to growth below potential, Dacanay said that a substantial economic slowdown was not anticipated to warrant a 50 bps rate cut.

“Growth, on the other hand, will determine the size of the rate cut. But as mentioned earlier on, we don’t think this will be much of a concern,” Dacanay said.

Meanwhile, ING Manila Bank Regional Head of Research Robert Carnell said that easing would not likely be a “one-and-done rate cut” as inflation is expected to slow substantially in the months ahead.

“We could see BSP tracking the Fed one-for-one in the coming months as the Fed finally begins its own easing cycle — depending on how the Philippine peso behaves, and further easing looks probable in 2025,” Carnell said, referring to the US Federal Reserve.

BSP Governor Eli Remolona Jr. has already indicated that the central bank might implement another 25-bps cut later this year, possibly during the meetings on October 17 or December 19, the remaining meetings of the Monetary Board for the year.