BSP may start cutting rates in Q3

The Bangko Sentral ng Pilipinas might start its policy easing in the third quarter, but upside risks due to inflationary pressures and the timing of rate cuts from the US Federal Reserve may warrant a higher for longer stance from the BSP.

- KEISHA TA-ASAN

Aris Dacanay, economist for ASEAN at HSBC, said headline inflation is expected to breach the government's two to four percent target band until August because of unfavorable base effects.

However, he said the BSP could start loosening its monetary reins once inflation returns to the target.

"Our base case scenario is for the BSP to cut rates by 25 basis points to 6.25 percent in the third quarter of 2024, and then by 50 basis points to 5.75 percent in the fourth quarter of 2024," Dacanay said.

The central bank's Monetary Board opted to maintain policy rates at a near 17-year high for the fourth straight meeting last Monday, keeping the target reverse repurchase rate at 6.50 percent.

The BSP emerged as the most aggressive central bank in the region, hiking interest rates by 450 basis points between May 2022 and October 2023 to tame inflation and stabilize the peso.