Policy Rate Views: More rate cuts ahead for US and the Philippines 

The US Federal Reserve (Fed) reduced its key interest rate, the Federal Funds Target Rate (FFR), by half a percentage point or 50 basis points (bps) to a range of 4.75% – 5.00%. This decision was made during the Federal Open Market Committee (FOMC) meeting on September 17-18. The FOMC, which is the Fed’s monetary policymaking body, recognized that job growth has slowed and that while inflation remains somewhat elevated, it has made further progress toward the Fed’s 2% target.

We have revised our forecast for the Federal Funds Rate. We now expect a total reduction of 100 bps worth of cuts for full year 2024 and another 100 bps for FY 2025. Following the recent 50-bp cut, we anticipate 25-bp cuts at each of the remaining FOMC meetings (November and December). This would bring the target FFR range to 4.25%-4.50% by the end of 2024 and 3.25% – 3.50% by the end of 2025.

On the domestic front, we maintain our prediction that the Bangko Sentral ng Pilipinas (BSP) will reduce its policy rate by a total of 75 bps in 2024. This translates to a 25-bp cut in both October and December. We expect a further total reduction of 100 basis points in 2025, which would bring policy rates down to 4.75% by the end of 2025.

We have also revised our year-end forecast for the dollar-peso exchange rate to 55.3 for 2024 and 54.5 for 2025. This forecast takes into account the expected net inflow of dollars from remittances in the fourth quarter, which would be partially offset by a projected wider trade deficit.

Download our report below for more details.