October 16, 2024 | 12:00am
“Our forecast is that a combination of weak economic growth and falling food price inflation will keep inflation low.”
MANILA, Philippines — More economists expect the Bangko Sentral ng Pilipinas (BSP) to reduce its policy rate by another 25 basis points today, continuing the central bank’s easing cycle which began in August.
In a report, Capital Economics said the BSP would likely bring down its key rate by 25 basis points to six percent today in response to the weakening economic growth and falling inflation.
“The economy is in need of further support,” Capital Economics said. “Gross domestic product (GDP) growth slowed in the second quarter to 0.5 percent quarter on quarter from 0.9 percent in the first quarter, on the back of declines in both private consumption and exports.”
It also said that fiscal tightening and weak export demand may keep economic activity subdued in the coming months.
The economy grew by six percent in the first semester as GDP growth went up to 6.3 percent in the second quarter from 5.8 percent in the first quarter. Private consumption grew by 4.6 percent in the second quarter this year, slower than the 5.5 percent in the same period last year.
According to Capital Economics, inflationary pressures have eased significantly, providing the central bank with more room to cut rates.
“Our forecast is that a combination of weak economic growth and falling food price inflation will keep inflation low,” Capital Economics said.
Headline inflation sharply slowed to an over four-year low of 1.9 percent in September from 3.3 percent in August. From January to September, inflation averaged at 3.4 percent, well-within the BSP’s two to four percent target.
“Looking beyond Wednesday’s meeting, we expect further cuts over the remainder of this year and in 2025. Our forecast that rates will finish next year at 4.75 percent makes us more dovish than the consensus,” Capital Economics added.
In a separate report, Nomura Global Markets Research said there is an 80 percent probability of the BSP cutting rates by 25 basis points today.
On the other hand, there is a 15 percent chance of a more aggressive 50-basis-point cut, while there is a five percent possibility that the Monetary Board would keep rates steady.
“We think BSP will cite the decline in headline inflation that allows it to further reduce the restrictiveness of its monetary stance in a calibrated manner, amid soft domestic demand conditions and a negative output gap,” Nomura said.
Unlike other central banks in the region, Nomura said BSP adheres more strictly to its inflation targeting framework. The BSP’s policy decisions will be more driven by the latest data on inflation.
Nomura also expects another 25-basis-point cut in December, bringing down the key rate to 5.75 percent by year-end.
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