Stocks may extend rally on BSP’s rate cut hints

PHILIPPINE SHARES may extend their climb this week after the Bangko Sentral ng Pilipinas (BSP) chief signaled that they could kick off their rate cut cycle as early as next month.

On Friday, the benchmark Philippine Stock Exchange index (PSEi) rallied for a fifth straight day, rising by 0.33% or 21.33 points to end at 6,411.91, while the broader all shares index increased by 0.25% or 8.96 points to close at 3,486.66.

Week on week, the PSEi climbed by 4.12% or 253.43 points from its 6,158.48 finish on June 21.

“After its largest weekly loss for the year, the PSEi made a quick bounce to form, recording its biggest weekly gain for the year… Bargain hunters rode a positive wave in sentiment from the BSP’s dovish messages,” 2TradeAsia.com said in a market note.

For this week, the market could rise further following the BSP’s dovish signals, Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a Viber message.

“The BSP has downgraded its risk-adjusted inflation forecasts for 2024 and 2025. At the same time, BSP Governor Eli M. Remolona, Jr. has signaled the possibility of a rate cut in their August meeting. Prospects of monetary easing are expected to boost confidence towards the market given its positive impact on the general economy as well as on the corporate sector,” Mr. Tantiangco said.

The BSP last week kept benchmark interest rates steady for a sixth straight meeting but signaled that a rate cut at its next meeting in August is “somewhat more likely than before.”

The Monetary Board on Thursday left its target reverse repurchase rate unchanged at a 17-year high of 6.5%, in line with the expectations of all 15 analysts in a BusinessWorld poll.

The BSP lowered its risk-adjusted inflation forecasts for this year and next to 3.1% from 3.8% and 3.7%, respectively.

Mr. Remolona said the Monetary Board is “on track” to cut rates when it next meets on Aug. 15. The BSP could cut rates by 25 basis points (bps) in the third quarter and by another 25 bps in the fourth quarter, he added.

“Investors are also expected to watch out for the Philippines’ June inflation data as this would also provide clues on our country’s monetary policy outlook,” Mr. Tantiangco said.

A BusinessWorld poll of 14 analysts conducted last week yielded a median estimate of 3.9% for June headline inflation, within the BSP’s 3.4-4.2% forecast for the month.

If realized, the June print would be steady from the May pace but be slower than the 5.4% logged in the same month a year ago. It would mark the seventh straight month that inflation was within the BSP’s 2-4% annual target.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in an e-mail that the PSEi’s immediate major support is at 6,360 and resistance is at 6,470-6,540, while 2Trade-Asia.com placed support at 6,300 and resistance at 6,500-6,600. — R.M.D. Ochave