‘US Fed cut has little effect on BSP moves’

September 21, 2024 | 12:00am

MANILA, Philippines — The recent jumbo rate cut from the US Federal Reserve will have minimal impact on the Bangko Sentral ng Pilipinas’ monetary policy decisions, according to BSP Governor Eli Remolona.

“We had largely anticipated the cut. So the cut itself would have little effect on our decisions,” Remolona told The STAR.

The US central bank kicked off its widely anticipated easing cycle with a larger-than-expected 50-basis-point interest rate cut on Wednesday. This brought the Fed’s benchmark rate to a range of 4.75 percent to five percent, its first reduction in more than four years.

“The subsequent appreciation of the peso along with other currencies seems to be related to the delayed reaction of stock markets,” Remolona said.

After the US Fed announced its hefty rate cut, the peso strengthened by 11 centavos to a six-month high of 55.61 to $1 on Thursday from 55.72 to $1 on Wednesday.

This was the peso’s best finish in more than six months or since it ended at 55.58 to $1 on March 18.

BSP senior assistant governor Edna Villa earlier said market expectations are now forecasting a total of 120 basis points worth of cuts from the US Federal Reserve for the remainder of the year, which is higher than what had been factored into financial markets just a week ago.

But despite global market volatility and the impact of US monetary policy on international financial conditions, the BSP’s decisions would be primarily influenced by domestic factors, the BSP chief had said.

“We don’t focus on what the Fed will do. We focus on our own data. What the Fed will do is one data point for us. It’s not most of the data,” Remolona said.

A month before the Fed’s September meeting, the Monetary Board cut borrowing costs by 25 basis points to 6.25 percent from the over 17-year high of 6.50 percent. This was also the first time the BSP reduced rates in nearly four years.

Prior to the cut, the BSP kept its policy rate steady for six straight meetings since November 2023. From May 2022 to October 2023, it hiked rates by 450 basis points to tame inflation and stabilize the peso.