Rate cut probably after Fed — Recto

The Bangko Sentral ng Pilipinas (BSP) will probably cut its policy rate after the US Federal Reserve, which has signaled it may start easing as late as December.

Finance Secretary Ralph G. Recto said in a text message that he does not think the BSP will cut rates ahead of the Fed.

Asked if the BSP would begin its easing cycle once the US central bank cuts rates, Mr. Recto, a member of the Monetary Board, said this was “highly probable.”

The Federal Reserve held interest rates steady on Wednesday and pushed out the start of rate cuts to perhaps as late as December, Reuters reported. Fed officials are now projecting only one rate cut for the year compared with previous expectations of three.

HSBC economist for ASEAN (Association of Southeast Asian Nations) Aris D. Dacanay said that the BSP does not have much room to cut ahead of the Fed.

“With no dovish signals by the Fed, we think the space for the BSP to cut as early as August without leading to much volatility in the peso is limited,” he said in an e-mail.

HSBC expects the BSP to begin reducing rates after the Fed in the fourth quarter. The Monetary Board only has two meetings in the fourth quarter — Oct. 17 and Dec. 19.

The Monetary Board has kept its benchmark rate steady at a 17-year high of 6.5% since October 2023.

BSP Governor Eli M. Remolona, Jr. has previously said that the earliest the central bank can begin cutting rates is in August, with a total of 25-50 basis points this year.

Mr. Dacanay said that inflation would need to decelerate and settle firmly within the 2-4% target for the central bank to consider easing.

“Although this isn’t our baseline scenario, what would open the opportunity for the BSP to cut ahead (of the Fed) is if inflation precipitously and immediately eases before the August meeting,” he said.

“And this will be a function of when the tariff rate cut on rice will be implemented and how fast the policy transmission will be.”

The National Economic and Development Authority Board approved a reduction in rice import tariffs to 15% from 35%. This measure is widely expected to bring down rice prices and effectively, inflation.

Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said that the Fed’s policy will “definitely” influence the BSP’s next moves.

However, he said that the BSP does not need to wait for the Fed. “Even if the peso comes under heavier-than-usual pressure BSP can cut well ahead of the Fed.”

Mr. Remolona earlier said the BSP does not need to wait for the Fed to begin its own easing cycle.

“As long as Philippine headline inflation prints continue to surprise on the downside, BSP can begin cutting already,” Mr. Neri added, noting to expect only “modest” cuts.

Headline inflation quickened for a fourth straight month to 3.9% in May from 3.8% in April. However, this marked the sixth straight month that inflation settled within the BSP’s 2-4% target band.

The BSP expects inflation to breach the target until July due to base effects.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that the BSP would likely match the rate cuts delivered by the Fed later this year and 2025 to maintain healthy interest rate differentials.

“If any Fed rate cut becomes imminent in September 2024, the BSP could start to cut rates by August 2024 since there are no BSP rate-setting meetings in September 2024,” Mr. Ricafort added.

The Monetary Board’s next policy meeting is on June 27. — By Luisa Maria Jacinta C. Jocson with Reuters