BSP and Fed Preview Refresh: Geopolitics at play    

Escalating geopolitical tensions in the Middle East sending shockwaves across financial markets prompts a change in our call for this week’s Federal Reserve (Fed) meeting.

Metrobank now expects the Fed to keep rates unchanged and delay the next cut further to September.

Tensions between Israel and Iran have only intensified since Friday when we released our joint preview for this week’s rate-announcements of the Fed and the Bangko Sentral ng Pilipinas (BSP).

The conflict drove spikes in global oil prices. This has driven significant spikes in global oil prices. Brent Crude reached as high as USD 78.50 per barrel, and West Texas Intermediate (WTI) Crude Oil traded to as much as USD 77.62 per barrel.

With no signs of de-escalation, market concerns continue to grow over the conflict’s potential to worsen and subsequently disrupt global oil supply chains.

These recent developments, alongside the ongoing tariff war between the US and the rest of the world, trigger heightened fears of elevated global inflation and a bleak economic outlook.

With this, Metrobank revises its expectations on the outcome of the Fed meeting on July 17-18, Eastern Time (ET).

Still a go for BSP 

Despite changes in Fed-cut expectations, Metrobank still anticipates the BSP to reduce the reserve repurchase (RRP) rate by 25 basis points at its next monetary board meeting on July 19.

We reiterate our views on easing inflation, which provides the BSP with enough room to continue easing monetary policy. Moreover, although the peso spot inched higher amid escalating geopolitical tension, it remains within the PHP 56 level, signaling its capacity to absorb a narrower interest rate differential (IRD) between the Fed and the BSP.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)