THE Bangko Sentral ng Pilipinas (BSP) could stay ahead of the US Federal Reserve — seen as finally easing policy next week — by ordering cuts totaling 75 basis points (bps) this year, an analyst said.
“Given the precarious timing of FOMC (Federal Open Market Committee) and BSP policy meetings, we could see [BSP] Governor [Eli] Remolona facing the option to cut rates ahead of the Fed again or to alternatively ‘hug the Fed’ by reacting to what [Fed Chairman Jerome] Powell would do,” Metrobank Research Nicholas Antonio Mapa said.
The BSP’s policymaking Monetary Board started easing ahead of the FOMC last month, lowering key interest rates by 25 bps.
Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. Photo from BSP
Remolona has indicated that another 25-bps cut could follow but also emphasized that the key focus was actually on 2025 given the lag in the impact of monetary policy.
Weak US economic data has led to talk that the US central bank could order a cut of as much as 50 bps next week instead of the 25 bps previously expected.
Another BSP rate cut in October, Mapa said, “would cement Remolona’s reputation as a front-runner as BSP remains focused on supporting growth now that the inflation outlook remains favorable.”
“We retain our 2+1 rate call (two cuts with a possibility of a third cut) for up to 75 bps worth of rate cuts by the central bank,” he added.
While a wider interest rate differential could put pressure on the peso, Mapa pointed out that the BSP’s August rate cut happened when the dollar was already weakening.
“The end result was that Governor Remolona was able to reverse his previous tightening without any undue pressure on the peso,” he noted.
The currency, which fell to the P58:$1 level in May when the BSP chief first indicated that local monetary authorities would not wait for a Fed easing, has since rebounded. It recently strengthened to the P55:$1 level but closed lower on Monday at P56.52 to the greenback.
Mapa said the “BSP is probably the central bank in the region with the most runway to reduce policy rates to more normal levels to help chase growth objectives.”
“A healthy 150 basis points (bps) of cumulative reduction over the next couple of months could help generate a takeoff for private investment and ensure a more sustainable course for growth,” he added.
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