Nomura bets on BSP rate cuts starting August ʼ24

The Bangko Sentral ng Pilipinas (BSP) will likely begin dialing back its anti-inflation rate hikes only by August this year, Nomura Global Markets Research said, adding that a premature rate cut risks upsetting inflation expectations.

In an emailed commentary, the research unit of the Japanese investment bank said the BSP continued to signal “patience” in terms of tweaking monetary policy settings despite inflation finally easing back to target last month.

“This remains consistent with our view that BSP will exercise patience in its pivot. We therefore reiterate our forecast for BSP to start cutting only in August, and deliver a total of 150bp in rate cuts to 5 percent through Q1 2025,” Nomura said.

State statisticians last week reported that inflation had slowed down to 3.9 percent in December, from 4.1 percent in November. That was the first time in 20 months that price increases were contained within the 2 to 4 percent target range of the inflation-targeting BSP.

Lowest reading

The December print was also the lowest reading in 22 months.

Already, other groups are betting on a rate cut by the BSP in the second half of 2024, when the US Federal Reserve (Fed) is also widely expected to start easing its own monetary policy. Some analysts said the BSP must move in lockstep with the Fed to avoid pressuring the peso.

But despite the milder increase in prices last month, the BSP itself had said it was necessary to “keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident.”

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High rates

At its last meeting for 2023, the powerful Monetary Board kept the BSP’s overnight borrowing rate unchanged at 6.5 percent, the highest in 16 years.

For Nomura, inflation is unlikely to return to within the target before July 2024, supporting BSP’s signals to keep its ultra-high rates for a longer period until price growth shows a more convincing downtrend.

“While inflation returned to target earlier than BSP’s forecast of Q3 2024, we do not see an immediate impact on monetary policy, given BSP remains cautious of upside inflation risks and remains hawkish,” Nomura said. INQ