BIZ BUZZ: Off-cycle rate cut in the works?
Rumors have been circulating, apparently since Wednesday, about an off-cycle policy rate cut that the Bangko Sentral ng Pilipinas (BSP) would supposedly make.
This, after the government reported a third-quarter gross domestic product (GDP) growth rate of 4 percent, which has been described—in varying degrees of displeasure—as “slower-than-expected,” “disappointing” or even “ugly.”
An off-cycle adjustment means that the Monetary Board would not wait for the next scheduled policy meeting—set for Dec. 11, the sixth and last for 2025—to make a move.
The previous such meeting was held last Oct. 9, when the central bank announced a reduction of its benchmark interest rate quarter percentage point (ppt) to 4.75 percent.
That was the fourth consecutive policy meeting with the same result. That also meant that the policy rate, so far this year, has been slashed by a full percentage point from 5.75 percent, all the more to encourage spending and investments to add fire to the domestic economy.
The last time an off-cycle policy change happened was in October 2023, when the BSP raised the key rate by 0.25 ppt to 6.5 percent.
Back then, the inflation rate had ratcheted up for the second month in a row to 6.1 percent in September.
The fear was that the rise in prices was heating back up toward the pandemic high of 8.7 percent recorded in January that year, after subsiding for six months straight to 4.7 percent in July.
Also, GDP growth was pegged at 4.3 percent in the second quarter of 2023, slowing down for the third consecutive period from 7.7 percent in the third quarter of 2022.
These days, the depressing GDP print has been seen as influencing the downslide of the stock market and the weakening of the Philippine peso.
The local currency reached a new record low against the US dollar in a span of 10 trading days—from 59.13:$1to 59.17:$1.
Michael Ricafort, chief economist at the Rizal Commercial Banking Corp., says that an off-cycle move is possible and could be justified by softer GDP data and still benign inflation.
Inflation has risen to 1.7 percent in October from a low of 0.9 percent in July. Yet, so far averaging at 1.7 percent over the past 10 months, inflation is still below the lower end of the BSP target range of 2 percent to 4 percent.
Meanwhile, even before this rumor, Miguel Chanco and Meekita Gupta at the United Kingdom-based Pantheon Macroeconomics earlier this week raised the possibility of a half percentage point rate cut next month.
By that, they meant that the 0.25-ppt BSP rate cut they forecast for early 2025 would be done in advance on top of a 0.25-ppt cut they were already expecting for December.
Chanco and Gupta see the BSP’s monetary policy easing cycle stopping at 4.25 percent.
“I’ve heard about these rumors, as well, but we’re sticking to our view that it’ll be a front-loaded 50bp cut in December. An off-cycle move wouldn’t be a stretch considering that the last time we saw one was also under Remolona’s stewardship in late-2023, though this was for a hike,” Chanco tells Biz Buzz.
“I suspect an off-cycle cut this time is off the table, as this could invite unnecessary further downward pressure on the peso, which has been wobbling of late,” he adds.
