La Niña may trigger aggressive rate cuts, says think tank

A La Niña could bring with it favorable growing conditions for crops in Southeast Asian countries like the Philippines, something that may help tame food prices and give central banks in the region more reason to be aggressive in cutting rates.

In a commentary, Ankita Amajuri, economist at Capital Economics, said the wetter weather that La Niña typically brings to the region would boost production of crops like rice, coffee and sugar, which have been adversely affected by dry conditions over the past year.

The projected increase in production, in turn, might convince central banks in Southeast Asia to be more forceful with their rate cuts, Amajuri said.

But she added that the extent to which above-normal rainfall conditions affect production will depend on the strength and duration of the event.

“Our view is that central banks in the region will begin cutting interest rates later this year,” she said.

“La Niña increases the odds that easing cycles will be even more aggressive than our forecasts, which are already more dovish than the consensus,” she added.

See Also

Brazil fishermen turn to mobile app to combat pollution scourge

The World Meteorological Organization is currently forecasting a 70 percent chance of a La Niña between August and November. In the Philippines, the state weather bureau said the onset of the weather phenomenon could happen much later in September.

Capital Economics expects the Bangko Sentral ng Pilipinas to ease by a total of 75 basis points this year, which would bring the key rate to 5.75 percent by the end of 2024 from the current level of 6.5 percent, an over 17-year high.