THE Bangko Sentral ng Pilipinas (BSP) has room for more rate cuts with two meetings left in the year, analysts said, following the US Federal Reserve’s (Fed) decision to lower interest rates by 50 basis points (bps).
The US central bank’s cut was expected, but the market was uncertain as to whether it would be 25 or 50 bps. The larger cut put it ahead of the BSP, which last month lowered its policy rate by 25 bps.
Metrobank Research economist Nicholas Antonio Mapa said the BSP now had more than enough space to cut the policy rate by another 25 bps in October with expectations of inflation dropping further.
It will also make “perfect sense” if the BSP decides to front-load cuts, he added.
The Fed has indicated that another 50 bps of cuts could follow this year.
Security Bank Corp. chief economist Robert Dan Roces said that the BSP has “more than enough space to do more.”
“With September inflation likely going below 3 percent, hence BSP can do more with 50 basis points more of cuts, one 25 basis point cut in October and another in December,” he added.
The BSP’s policymaking Monetary Board’s last two rate-setting meetings this year will be on October 17 and December 19.
The Fed’s Federal Open Market Committee, meanwhile, will next meet on November 6-7 and December 17-18.
BPI senior economist Emilio Neri said the BSP could cut rates twice more this year but expects just one more.
He noted that economic activity remained and said the Monetary Board should focus on lowering the reserve requirement ratio (RRR) and strengthening the central bank’s reserves.
“The current BSP-MB doesn’t seem to be rushing to cut rates as it also needs to proactively give room for the planned ‘substantial reduction’ in our RRR and will need to rebuild a bigger GIR (gross international reserves) buffer given the rapid expansion in the country’s external debt,” Neri said.
Remolona on Wednesday said that banks’ reserve requirements would be cut “substantially” this year, with more reductions likely in 2025, freeing up funds for productive activities to help boost economic growth.
Union Bank of the Philippines Ruben Carlo Asuncion also believes that the central bank will be mindful of reducing rates further.
He said that it was unlikely that the BSP would follow the Fed with a similar jumbo cut.
“The BSP will maintain a ‘calibrated’ response in managing inflation risks dominated by supply-side catalysts,” Asuncion said.
“Pesky CPI (consumer price index) upticks owing to weather shocks, perhaps in tandem with oil price volatility, can unsettle inflation expectations and blur the outlook for rate cut adjustments down the road,” he added.
Be the first to comment