The Bangko Sentral ng Pilipinas (BSP) will likely cut interest rates by the second half of 2024, BMI, a Fitch Solutions company, said Monday.
“The BSP will only embark on policy loosening in the second half of 2024, similar to other central banks. We are forecasting 75 bps [basis points] worth of cuts for now,” BMI said in a briefing paper.
BMI said the possible rate cuts would be line with its expectations with the US Federal Reserve’s adjustments.
“Similar to our expectation for the US Fed, we think that cuts will materialize only in the second half. A pre-emptive return to monetary loosening could not only de-anchor inflation expectations but also weaken the Philippine peso,” BMI said.
BMI said the risks of its interest rate forecasts are skewed towards further tightening.
“The biggest uncertainty surrounds the severity of El-Nino weather conditions. Similar events are often accompanied by periods of higher food prices. While we have factored this into our projections, things could still deteriorate further. A strong surge in price pressures could prompt the BSP to resume its tightening cycle,” it said.
BMI said it was expecting the BSP to maintain its current policy stance in its first monetary board meeting in 2024.
“Philippine economic resilience reduces the urgency for the BSP to lower interest rates. The third quarter growth figures surprisingly came in much stronger than most analysts, including ourselves, expected,” BMI said.
“2024 is set to be a stellar year and we forecast the economy to expand by 6.2 percent. This provides the BSP with more room to keep interest rates at multi-year highs for some time,” it said.
BMI also expects consumer prices to stay within the BSP’s target range of 2 percent to 4 percent for majority of 2024.
Inflation averaged 6 percent in 2023, faster than 5.8 percent in 2022. It was also higher than the target range of 2 percent and 4 percent for the year, but within the Development Budget Coordination Committee (DBCC) assumption of 5 to 6 percent.
“The peso will be buoyed by high interest rates and is expected to stay on a broad sideways trend” it said.