Market analysts predict that the Bangko Sentral ng Pilipinas (BSP) will maintain its benchmark interest rate at 6.25 percent for the third consecutive policy meeting on Aug. 17, according to a recent report. However, experts have differing opinions on whether the central bank will continue tightening or if rate cuts are on the horizon.
Goldman Sachs believes that inflation in the Philippines has eased faster than expected and is on track to return within the BSP’s target range of 4 percent. The monthly inflation rate has been declining for the past six months, reaching 4.7 percent in July compared to 8.7 percent in January. As a result, Goldman Sachs expects the BSP to keep the policy rate unchanged for the rest of the year.
Citi group shares a similar view, stating that the softer growth rate of 4.3 percent in the second quarter will likely convince the BSP to maintain its policy rate despite ongoing upside risks from food inflation.
ING Bank also predicts a pause in policy tightening, but highlights that persistent upside risks to the inflation outlook may lead the BSP to adopt a hawkish stance.
On the other hand, BofA Securities anticipates a continued pause in August, but expects the BSP to raise the policy rate by 25 basis points at its September meeting, following the expected rate hike by the US Federal Reserve.
Pantheon Macroeconomics, however, believes that the BSP’s pause will be short-lived and expects rate cuts of 50 basis points in the fourth quarter as inflation is projected to return to the BSP’s target range in October.
The BSP’s benchmark interest rate currently stands at 6.25 percent, while the US federal funds rate ranges from 5.25 percent to 5.5 percent, resulting in a spread of 0.75 percentage points to 1 percentage point between the two rates.
For now, analysts agree that the BSP is likely to maintain the status quo in August, but the future direction of monetary policy will depend on various factors, including inflation trends and external developments.
