The Bangko Sentral ng Pilipinas will likely maintain its monetary policy stance steady until the third quarter of 2024, British financial firm Hongkong and Shanghai Banking Corp. said Friday.
HSBC issued the statement after the BSP kept the overnight borrowing rate steady at 6.5 percent on Thursday amid the slowdown in inflation in October and the stronger gross domestic product expansion in the third quarter.
“We continue to believe that rate cuts are off the table until 3Q 2024, when inflation is credibly well within the BSP’s 2-4 percent target band and when the Fed begins cutting rates,” HSBC said.
“We expect headline inflation to flare up in 1Q 2024 when Executive Order 10, an order that temporarily reduces the tariff rates for rice, corn, pork, and coal expires on 31 December 2023. As a result, headline CPI will likely breach the BSP’s 2-4 percent target band in 2Q 2024 but return to within the target band in 3Q 2024,” it said.
The bank said this expected inflation flare-up should keep the BSP on its toes and prevent it from cutting rates before the second half of 2024 unless authorities extend Executive Order 10.
“HSBC Economics believes the Fed will begin cutting rates in 3Q 2024. With the current account in the Philippines still wider than pre-pandemic levels, we expect the BSP to follow the easing cycle of the Fed to help support the PHP [Philippine peso] and prevent ‘imported inflation’ from complicating the outlook,” it said.
Oxford Economics, a global economic forecasting and econometric analysis agency, said it expects the BSP to keep interest rates unchanged until the second quarter of 2024, before starting to cut rates.
“We continue to expect the central bank to remain on hold until Q2 2024, when BSP will likely shift to rate cuts. Declining inflation should keep BSP on the sidelines until then. The risks are tilted to a delayed start to the rate cut cycle given inflation volatility and our expectation for the US Fed to start cutting only in Q3 2024,” said Oxford Economics economist Makoto Tsuchiya.
Meanwhile, Ryota Abe, an economist at Sumitomo Mitsui Banking Corp. said the BSP was expected to hold the rates steady at the next Monetary Board meeting on Dec. 14. “However, as the outcome will still be data-dependent, attention will be on the November CPI on Dec. 5,” Abe said.
“Consumers’ one-year-ahead inflation expectations have surged from 5.18% in the second quarter to 6.64 percent in the third quarter. Consumers’ sense of high prices has not yet been resolved, and the risk of further stickiness of inflation cannot be ignored as upward price pressures arising from supply-side factors trigger secondary price increases, which is what BSP fears. BSP has no choice but to continue its hawkish monetary policy for the time being,” Abe said.