The Bangko Sentral ng Pilipinas (BSP) is considering cutting borrowing costs by 25 basis points as early as August, and another 25 bps in the fourth quarter, according to Moody’s Analytics. Economist Sarah Tan from Moody’s Analytics stated that if inflation and the peso stabilize in the second half of the year, the BSP may decide to lower rates.
Despite expectations that inflation may breach the BSP’s target range in the coming months due to the impact of El Niño on food supply, Tan believes that inflation is likely to slow down in the third quarter. She also mentioned that the peso is expected to strengthen against the dollar in the coming quarter, following a recent weakening trend.
Tan indicated that these developments could lead to a reduction in borrowing costs by the BSP as early as August. However, she also highlighted the possibility of a delay in monetary easing to October if inflation exceeds the target range or if the peso weakens further.
The Monetary Board has maintained the policy rate at a 17-year high of 6.50 percent for the past four meetings. Tan noted that inflation has been within the BSP’s target range for five consecutive months, with headline inflation reaching 3.8 percent in April.
Moody’s Analytics expects a total of 50 basis points in rate cuts this year, with two cuts of 25 basis points each. The Philippine economy is projected to grow by 5.9 percent in 2024, slightly below the government’s target range. However, the country is expected to outperform many regional peers.
The easing in policy rates is seen as a way to relieve pressure on household budgets and boost consumer spending. Despite a slowdown in economic growth in the first quarter, the Philippines continues to perform well compared to other countries in the region. Analysts believe that inflation could drop sharply in August if current trends in rice and oil prices continue.
