Pace of easing must be considered very carefully — BSP

The Bangko ng Pilipinas’ (BSP) policy path is skewed towards easing, but the pace of cuts should be carefully considered, an official said.

“In the case of the central bank, we’ve actually had two meetings where the Monetary Board has relaxed the policy stance. The messaging is that while the general direction is still for relaxation, the pacing has to be considered very carefully,” BSP Deputy Governor Francisco G. Dakila, Jr. said at the ASEAN+3 Economic Cooperation and Financial Stability Forum.

The Monetary Board is expected to deliver another 25-basis-point (bp) rate cut on Thursday, according to 13 out of 16 analysts in a BusinessWorld poll conducted last week.

If realized, this would be the third straight meeting that the central bank reduced rates.

It would also bring the benchmark rate to 5.75% from the current 6%, for a total of 75 bps worth of cuts by end-2024.

The BSP began its rate-cutting cycle in August with a 25-bp cut and delivered another cut of the same size in October.

BSP Governor Eli M. Remolona, Jr. earlier said they plan to implement rate cuts in “baby steps.” He also noted that while they are likely to continue further easing next year, it may not necessarily be done every meeting or every quarter.

“When we began the relaxation pace, we were thinking that in 2025, the Fed would be lowering by about 100 bps,” Mr. Dakila said.

“And now… that space has changed considerably because the Fed is now envisioned to move by just 50 bps in 2025,” he added.

Markets are awaiting further signals from the US Federal Reserve’s final meeting for the year. Investors see it as a near-given that the Fed will cut rates by a quarter point at its Dec. 17-18 meeting. However, markets have only priced in an 18% chance of a January cut, according to CME’s FedWatch tool, Reuters reported.

“Because of the changing inflation dynamics in the United States, it may be that right now, we’re not looking at a scenario where the Fed would be raising rates again,” Mr. Dakila said.

“But the most likely scenario is that they will still be reducing in 2025, but at a slower pace than before. And we have taken that into account into our policy scenarios,” he added.

However, Mr. Dakila said the BSP prefers to take into consideration domestic data in its policy decisions.

“But even so, the main consideration for monetary policy would be domestic inflation and how that relates to the target,” he said.

Headline inflation averaged 3.2% in the 11-month period, still well within the BSP’s 2-4% target range.

“Even when we look at the risk-adjusted forecast, they remain within the target band. So having said that, it’s the case, therefore, that the primary consideration for monetary policy would be domestic inflation, how inflation relates to the target,” Mr. Dakila said.

The central bank expects the inflation rate to average 3.1% this year.

Meanwhile, Mr. Dakila said that the peso’s recent performance has been similar to other currencies in the region. Currency movements are making less of an impact on inflation-targeting, he added.

“Just to note that with inflation targeting, what we’ve seen is that the sensitivity of inflation to changes in the currency has gone down considerably as the public has become more accustomed to seeing greater volatility in the peso.”

“I think that’s a good sign because that means that we can worry less about our ability to meet the inflation target while keeping to a market-determined exchange rate.”

The peso closed at PHP 58.671 per dollar on Monday, weakening by 20.1 centavos from its PHP 58.47 finish on Friday. This was its weakest finish since its PHP 58.71-per-dollar close on Nov. 27.

“Having said that, as the Board has already said, we retain the option to go into the market should there be any conditions that threaten to go into an abrupt change in the exchange rate that can dis-anchor inflationary expectations,” Mr. Dakila added. — Luisa Maria Jacinta C. Jocson