Central bank might deliver fewer rate cuts this year

The Bangko Sentral ng Pilipinas (BPS) is expected to deliver fewer rate cuts later this year as the US Federal Reserve is likely to delay its own policy easing.

“The BSP may begin its own easing cycle in the fourth quarter, lagging the Fed’s first policy rate cut to support the peso,” the Metrobank Research and Market Strategy Department said in a report.

“Given the new projections on US policy rate, we now forecast a total of 50 basis points (bps) in cuts for the year to 6%, down from our previous projection of 75 bps.”

Fed officials are now pricing in just one rate cut this year, compared with expectations of three cuts previously. They also signaled that policy easing might be pushed back to as late as December.

Last week, the US central bank left its policy rate unchanged at 5.25%-5.5% for a seventh straight meeting.

“The Fed kept rates unchanged and remained cautious of the future of rate cuts, implying just one cut — a far departure from three to five cuts,” Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said in a Viber message.

Metrobank Research said the Fed might cut rates as early as September.

“The Fed may begin cutting rates as early as its Sept. 18 Federal Open Market Committee (FOMC) meeting and by a total of 50 bps for the full year to 4.75%-5% as inflation is expected to have peaked by June and July, observable by August,” it added.

BSP Governor Eli M. Remolona, Jr. earlier said the BSP could begin cutting rates as early as August, for a total of 25-50 bps for the entire year.

Mr. Remolona also said the BSP does not need to wait for the US central bank to begin reducing rates because its own monetary decisions are “independent” of the Fed.

On the other hand, Finance Secretary Ralph G. Recto, who is a member of the Monetary Board, said it is unlikely for the BSP to cut ahead of the Fed.

Mr. Recto said it was “highly probable” that the BSP would only begin its easing cycle once the Fed starts cutting rates.

Mr. Ravelas said he expects “no change” in the monetary decision of the BSP at the next policy meeting.

The Monetary Board is set to hold its next policy review on June 27.

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

The BSP raised borrowing costs by 450 bps from May 2022 to October 2023. — Luisa Maria Jacinta C. Jocson