THE Bangko Sentral ng Pilipinas (BSP) can copy last week’s supersized US Federal Reserve (Fed) rate cut amid slowing inflation, Finance Secretary Ralph Recto said on Tuesday.
“I think we can also do half a percent,” he told Palace reporters.
The Finance chief is a member of the BSP’s policymaking Monetary Board, which last month kicked off an easing cycle by ordering a 25-basis-point cut that lowered the benchmark rate to 6.25 percent.
Last Wednesday, the US central bank also began loosening policy via a 50 bps reduction, which put its policy rate to a range of 4.75-5.0 percent and indicated that another 50 bps could follow before the year ends.
BSP Governor Eli Remolona Jr. last month said that there was room for another 25-bp rate cut in the fourth quarter, although this could change given the Fed move.
The Monetary Board has two policy meetings left for the year, in October and December.
Recto said the country stood a better chance of achieving the 6.0- to 6.5-percent growth goal for the year if interest rates are lowered further.
He expects the economy to grow by 6.1 percent, which will also be helped by slower inflation.
The Finance chief said that consumer price growth could decelerate to 2.5 percent this month and average 3.4 percent for 2024, within the BSP’s 2.0- to 4.0-percent target.
“The beauty about reducing inflation is that your GDP (gross domestic product) growth goes up and more jobs can be created, your borrowing cost goes down,” he added.
Capital Economics, however, expects GDP growth to hit just 5.1 percent this year due to tighter fiscal policy and weaker remittances.
“With growth set to struggle and inflation likely to remain low, further easing is likely over the remainder of this year and in the first half of next year,” it said in a report on Tuesday.
Growth could pick up to 5.5 percent in 2025, Capital Economics said, but this is also below the 6.5- to 7.5-percent goal for that year.
Further rate cuts will provide some support to consumption and boost economic growth, it added.
It expects the BSP to implement 25 bps rate cuts in October and December, bringing the policy rate to 5.75 percent by year-end.
For HSBC Global Research economist Aris Dacanay, the BSP will remain “data-dependent.”
“Though the RRR (reserve requirement ratio) cut [announced last Friday] does increase the funding flexibility of banks [which may be understood as a form of easing], we don’t think the RRR cut significantly alters the monetary policy outlook, nor does it tilt the chances of an October rate cut,” he said.
“The BSP only signaled one 25-bp rate cut for the rest of 2024, showcasing that the BSP isn’t in much of a rush to loosen the monetary reins. This has also been our long-held view.”
Last week’s Fed move, Dacanay said, has increased the possibility of a 50-bps BSP cut in the fourth quarter.
Be the first to comment