ANZ Research bets on BSP rate cut in Q4
@ipcigaral The Bangko Sentral ng Pilipinas (BSP) is expected to start cutting interest rates in the final quarter of 2024 after inflation finally retreated to the government’s target band, ANZ Research said.
In a commentary emailed to journalists on Wednesday, ANZ said the BSP may start loosening its ultra-tight monetary policy ahead of its previous projection of a rate cut happening in early 2025.
ANZ now expects the BSP’s benchmark rate to go down to 6 percent by the end of 2024, from the 16-year high of 6.5 percent at present, before declining further to 5 percent by 2025.
“The faster-than-expected deceleration in prices should be comforting for the [BSP],” ANZ said.
Latest government data showed inflation eased to 3.9 percent in December 2023, from 4.1 percent in November.
That was the first time in 20 months that price growth eased back to within the central bank’s 2 to 4 percent target range. The December print was also the lowest reading in 22 months. But despite the milder increase in prices last month, the BSP said it deems it necessary to “keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident.” At its last meeting for 2023, the powerful Monetary Board kept the BSP’s policy rate unchanged at 6.5 percent.
As it is, ANZ’s timing for the rate cut is later than that of other groups, which have penciled in a rate cut as early as June and August this year to match the expected timing of monetary policy easing by the US Federal Reserve.
Patient and cautious
But ANZ agreed with others that the BSP must be “patient and cautious” for now to avoid upsetting inflation expectations, which remains elevated based on the latest consumer outlook survey of the central bank.
ANZ also said the BSP must wait until inflation shows a more convincing downtrend amid threats from a prolonged El Niño weather phenomenon, which can jack up food and power prices.
At the same time, ANZ said the BSP should be mindful of the country’s bloating import bill amid the Marcos administration’s massive infrastructure program, which may pressure the peso and fan inflation by pushing up import costs.Currently, the Philippines has a so-called current account deficit, which means the country is spending more dollars abroad to pay for its imports than it receives from export sales. This can weaken the local currency.
“The central bank needs to be patient and cautious for now. Inflation expectations are not anchored yet and pressure on the current account is reemerging,” ANZ said.
“Even so, easing financial conditions in the US should help fund the current account deficit,” it added. INQ
