Merkado Barkada
October 17, 2024 | 8:00am
The Bangko Sentral ng Pilipinas (BSP) [link] met expectations yesterday when it announced a 25 basis point cut to our headline interest rate, bringing the rate to 6.0% (the lowest it has been since February 2023). The cut met the consensus expectations of economists despite Finance Secretary Ralph Recto’s bluster earlier this month pushing a 50 basis point cut for this meeting. The BSP said that the Monetary Board based its decision on “its assessment that price pressures remain manageable”. While the BSP lowered its FY24 inflation projection from 3.3% to 3.1%, it raised its inflation projection for FY25 and FY26 to 3.3% and 3.7%, respectively.
MB bottom-line: What’s funny to me is how the BSP was so comfortable being reactive and aggressive in response to the data on the way up, raising rates and holding rates high even while acknowledging that the true drivers of inflation were on the supply side and not directly impacted by the BSP’s rate moves. Now that the data shows inflation well within target, what’s the point of slow-walking the cuts? Either way, fixed-income investments like bonds, preferred shares, and REITs should see yields adjust slightly lower in response to this cut, with the prospect of still lower yields to come in the future coming out of the BSP’s December meeting.
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