BSP can break free from US Fed - HSBC

An improving current account balance, promising outlook for foreign direct investments and a substantial slowdown in inflation are three possibilities that can help the Bangko Sentral ng Pilipinas (BSP) cut borrowing costs ahead of the US Federal Reserve, according to British banking giant HSBC.

- KEISHA TA-ASAN

In a report, HSBC economist for ASEAN Aris Dacanay said that while the BSP is unlikely to cut ahead of the Fed this year, the British bank noted that the Philippines' monetary policy is becoming more independent from the US central bank.

"We highlight three possibilities that could help the BSP break free, even partially, from the Fed," he said, citing that the current account balance, the real policy rate differential between the two central banks and inflation must be better than pre-pandemic levels.

"If these fundamentals continue to improve and we see the Fed dot plot delaying its first rate cut, perhaps, to next year, the BSP might not necessarily need to follow suit," he said.

According to Dacanay, the Philippines' external fundamentals are improving faster than what many had anticipated amid robust consumption and overseas remittances.

The Philippines' current account deficit narrowed slightly to $1.7 billion in the first quarter from a year-ago level of $4.4 billion, based on BSP data.