An early interest rate cut by the Bangko Sentral ng Pilipinas (BSP) may risk higher inflation, according to Oxford Economics.
Oxford Economics was responding to the BSP’s hint that the interest adjustment may happen as early as August 2024, earlier than the expected fourth-quarter reduction.
“A cut in August would come before the US Fed’s first cut, which we expect to happen in September. Such a scenario is not impossible if domestic inflation remains under control, but it risks both higher imported inflation down the road and capital flight, especially in times of high geopolitical tensions,” the UK-based research organization said.
The BSP decided to maintain its policy rate at 6.5 percent on Thursday, but turned less hawkish particularly around the inflation outlook. “The change in the central bank’s tone and the subdued private spending in Q1 tip the risks around our baseline call for the first rate cut in Q4. If inflationary pressures remain limited and growth moderation continues, we could see the first cut in as early as August,” Oxford Economics said.