BSP to rely on Fed for rate direction, says finance chief

November 8, 2024 | 12:00am

After Trump win

MANILA, Philippines —  The Philippines will likely monitor how the US Federal Reserve adjusts its policy, especially as Donald Trump returns to the White House.

In a forum yesterday, Finance Secretary and Monetary Board member Ralph Recto said the government has created a more conducive environment for growth and investments after the Bangko Sentral ng Pilipinas (BSP) reduced key interest rates.

In August, the BSP moved ahead of the Fed and finally eased rates by 25 basis points. It delivered another rate cut of 25 basis points last month as inflation pressures receded.

Recto maintained that more rate cuts are expected in the coming months. But he said such a move will have to be reviewed given recent developments.

“Rate cut will depend on inflation data. Likewise, will the Fed further reduce policy rate? These will be our considerations,” Recto said.

Inflation in October broke a two-month downtrend and quickened to 2.3 percent on the back of more more expensive food items.

As to policy easing, the Fed in September delivered a jumbo-sized 50-basis-point rate cut, its first time doing so since March 2020.

The Fed was earlier expected to ease again by the same magnitude before the year ends. However, it has recently turned more cautious and signaled that it could proceed with modest easing instead.

Now that Trump secured a return ticket to the White House, analysts are expecting that the Fed could move slower than initially expected in its easing as the Republican leader’s policies could undermine efforts to slow inflation.

The BSP earlier did not dismiss a possibility of another 25-basis-point reduction in December and a bigger 100 basis points easing to be spread out in 2025.

Nonetheless, Recto emphasized that the challenge remains to be bringing interest rates down to ensure higher economic growth next year and in the medium-term.

For now, the Finance chief maintained that it is still hard to tell how a Trump presidency could impact the economic landscape in the Philippines.

“Initially, it appeared that a Trump victory was good for equities, bad for the bond market, rates have been going up. Temporarily, you have a strong US dollar,” Recto said.

“If President Trump, being a real estate person, sees the value of the Philippines, it may be good for us. Or if he is good for global security and you have less geopolitical tensions and less wars, then that should be good for everyone,” he said.