Policy Rate Updates: No rate cuts for now

The Bangko Sentral ng Pilipinas (BSP) maintained its target overnight reverse repurchase (RRP) rate at 6.50% for the fifth time at its third Monetary Board (MB) meeting this year. The BSP also revised its risk-adjusted headline inflation forecast for this year to 3.8% from 4.0%, and for 2025 to 3.7% from 3.5%.

Given the downward revision to BSP’s risk-adjusted inflation forecast this year, Governor Eli Remolona stated that the Monetary Board has turned somewhat less hawkish than before, noting that the easing cycle could begin as early as August.

Metrobank Research maintains its baseline forecast that the BSP’s monetary easing will likely begin in the second half of the year. In particular, the BSP will likely start easing by the 4th quarter of 2024 by a total of 75 basis points (bps) to 5.75%. This assumption takes into account persisting, albeit relatively more subdued, upside risks to inflation such as higher transport costs, higher electricity rates, elevated global oil and food prices, and a weaker peso. According to the BSP, inflation will peak around June or July due to low base effects and may possibly breach the upper band of the 2-4% target. Inflation will likely be on a downward trajectory thereafter.

For more of our analysis, please download the report below.