THE need to prop up economic growth will likely lead to a third straight policy rate cut next week by the Bangko Sentral ng Pilipinas (BSP), analysts said, even as inflation accelerated for a second straight month in November.
Consumer price growth edged up to 2.5 percent last month from 2.3 percent in October, hitting the median forecast in a Manila Times poll of economists and falling within the BSP’s 2.2- to 3.0-percent estimate.
Gross domestic product (GDP) growth, meanwhile, markedly slowed to 5.2 percent in the third quarter from 6.4 percent three months earlier, putting the government’s then 6.0-7.0 percent target for 2024 at risk of not being met.
Economic managers last week trimmed the upper end of the goal to 6.5 percent, but continued to insist that growth — at 5.8 percent as of end-October — could average 6.0 percent by the end of the year.
Next year’s target was both lowered and expanded to 6.0-8.0 percent, from 6.5-7.5 percent, to reflect the likely impact of recent reforms and “evolving domestic and global uncertainties.”
Inflation, which picked up as prices of some key food items rose following a series of storms, has now risen for two straight months. ANZ Research, however, said that “inflationary pressures were not broad-based, and the near-term outlook remains benign.”
“Therefore, we think the BSP will lower its policy rate by 25bp (basis points) at its next meeting in December along with cumulative cuts of 75bp in 2025 to help bolster domestic demand,” it added.
The BSP’s policymaking Monetary Board began lowering key interest rates in August as inflation settled within the 2.0- to. 4.0-percent target.
Two 25-basis point cuts — the second was made in September — have lowered the BSP’s benchmark rate to 6.0 percent from the 17-year of 6.5 percent as monetary authorities battled a surge in inflation.
With inflation growth having softened — October’s 2.3 percent rose from 1.9 percent a month earlier — and the third-quarter GDP slowdown, HSBC Global Research economist Aris Dacanay said that another rate cut was likely on Dec. 19.
“The only upside risk to monetary policy is the currency (peso-dollar exchange rate),” he said, noting that it had ranged between P58.5-59 last month and “was even millimeters away from breaching its historic highs on November 26.”
“But things got better since then,” Dacanay added.
The currency twice hit P59:$1 last month after global markets were spooked by US President-elect Donald Trump’s announcement that he would raise tariffs immediately upon taking office next year.
“[I]t will be key to monitor the tone of the Fed in the next two weeks,” Dacanay added, saying that “any shift to a more hawkish rhetoric may introduce volatility in the currency and prompt the BSP to pause its easing cycle.”
The peso first hit its record low of P59 to the dollar in October 2022 after the BSP was seen as having failed to match aggressive rate hikes by the US central bank.
The Fed is scheduled to hold its last policy meeting on Dec. 17-18. Most analysts have said that a 25-basis point cut is likely with US inflation still above target, but Fed Chairman Jerome Powell has indicated that the pace of easing could slow.
The BSP, meanwhile, has said that data and not the Fed’s moves would be the primary consideration in deciding monetary policy.
Last week, it said that the Monetary Board will “consider the latest inflation outturn in its upcoming monetary policy meeting on 19 December 2024.”
“The BSP will continue to maintain a measured approach in its easing cycle to ensure price stability conducive to sustainable economic growth and employment,” it added.
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