BSP could still cut rates next week, Recto says

The Bangko Sentral ng Pilipinas (BSP) may still cut benchmark interest rates at its policy meeting next week, Finance Secretary Ralph G. Recto said on Wednesday.

“I expect a reduction in rates within the year. It could happen in August, it could happen off-cycle, it could happen in the next board meeting. I would prefer lower rates so we can borrow domestically at lower rates as well,” Mr. Recto, who is also a member of the BSP’s policy-setting Monetary Board, told reporters on Wednesday.

“The Fed (US Federal Reserve) will probably do a rate cut in September, then us in August. The difference is just one month,” he added.

The Finance chief said he expects 50 basis points (bps) worth of BSP cuts this year. “But (that) could even be higher, but it depends on what the Fed does also. It depends on our inflation expectations,” he added.

The Monetary Board in June kept its policy rate at an over 17-year high of 6.5% for a sixth straight meeting.

BSP Governor Eli M. Remolona, Jr. said on Tuesday they are now “a little bit less likely” to cut rates at their Aug. 15 policy review amid “slightly worse than expected” inflation.

Headline inflation quickened to 4.4% in July, the fastest pace in nine months or since the 4.9% recorded in October 2023 and marking the first time that it breached the central bank’s 2-4% annual target range since November.

Mr. Recto said he is also open to an off-cycle cut if necessary.

“I’m definitely open to reducing interest rates. That is the objective. Whether it’s a regular cycle or off-cycle. I think the BSP governor also said that we could do an off-cycle. There’s no meeting in September, but he can call for an off-cycle. It depends. Like I said, it all depends on our briefings. We will get market updates,” he added.

Meanwhile, Nomura Global Markets Research said it still sees the BSP starting its easing cycle this month as the spike in July inflation is likely temporary.

“In terms of monetary policy, the July consumer price index (CPI) outturn does not change our latest view that BSP’s rate-cutting cycle could begin in August given its pickup is likely to have been temporary,” it said in a report.

“BSP also retained in its post-CPI statement that headline inflation will start easing in August and assessed that the balance of risks to the inflation outlook has “shifted to the downside.”

Nomura expects the central bank to slash benchmark rates by 25 bps at its meeting next week.

“If inflation has indeed already peaked, then BSP may not have to wait for its next meeting, which is two months away (Oct. 17),” it added.

Meanwhile, it expects full-year inflation to average 2.8% this year, well below the BSP’s 3.3% forecast, noting that this outlook was primarily due to the impact of the recent cut in tariffs on rice imports.

“Assuming full pass-through, we estimate the tariff cut could lower headline inflation sharply to around 2.1% in August before settling between 1.7% and 2.1% by the fourth quarter. This suggests the pickup in July is likely to have been temporary and will prove to be the peak,” Nomura said. — Luisa Maria Jacinta C. Jocson