MANILA – Fitch Solutions unit BMI said the Monetary Board (MB) of the Bangko Sentral ng Pilipinas (BSP) will likely lower key interest rates by 50 basis points (bps) by October this year.
In a report on Monday, BMI said the BSP will only start to reduce interest rates after the US Federal Reserve decides to cut rates.
"The BSP kept its benchmark policy rate unchanged at its June 27 meeting. While this did not come as a surprise to us, we are revising our policy rate forecast to incorporate just one 50 bps cut in October at the earliest," BMI said.
The MB, which is BSP's highest policymaking body, kept policy rates unchanged at 6.5 percent for six consecutive meetings.
"We still think that the Bank’s next move will be a cut and it will materialize only when the Fed embarks on policy easing of its own. The main difference from our last update is that we have revised our Fed outlook," BMI said.
It forecasts the Fed to reduce interest rates by 50 bps starting in September.
According to BMI, while BSP Governor Eli Remolona Jr. hinted the possibility of a rate cut in August, "an early cut remains out of the question even if price pressures ease substantially."
BMI said the reduced rice tariff can help lower headline inflation by up to 1.3 percentage points but this would take some time before the full impact feed through to rice prices.
It however noted that inflation is expected to settle at 3.2 percent this year which is well within the government's target.
BMI said at present, the "biggest barrier to monetary loosening is currency stability."
The Philippine peso has been hovering at more than 58 to a dollar in the past weeks.
"Constant fluctuations in US interest rate expectations have led to much volatility in many emerging market currencies. And the peso is no exception. As such, the BSP will be extremely mindful of a pre-emptive return to monetary loosening, for fear of exacerbating weakness in the already weak peso," BMI said.
"This feeds into our expectations for the BSP to embark on its first cut only in October at the earliest. The monetary cycles of both the Philippines and the Fed tend to track each other closely," it said.
It however said the BSP may also cut rates earlier than expected if inflationary pressures recede faster.
For 2025, BMI forecasts the BSP to ease policy rates by another 150 bps. (PNA)
