go through Katherine K. Chen
Sentral Ng Pili, BangkokpiNAS (BSP) is widely expected The rate of reduction for the third consecutive meeting on ThursdayInflation and Analysts say economic growth slows.
one BusinessWorld Polls conducted last week showed that all 20 analysts surveyed expected the Monetary Commission to reduce the target reverse repurchase rate by 25 basis points (BPS) at its policy meeting on August 28.
If implemented, this will increase the benchmark rate from the current 5.25% to 5%.
Central banks have so far reduced borrowing costs by 125 basis points since their slow cycle began last August. It made two A$2.5 billion cuts at each meeting in May and June.
“Inflation is currently leading well below the BSP’s 2-4% target band, easing to as low as 0.9% year on year in July. Given the performance of inflation so far, the BSP, we believe, has the runway to quicken and, most especially, deepen its easing cycle,” HSBC economicist for ASEAN (Association of Southeast Asian Nations) Aris D. Dacanay said.
Inflation fell to 0.9% in July, the lowest in nearly six years, or since the 0.6% printing released in October 2019. This also marks the fifth straight month of inflation to be below the central bank’s target range of 2-4%.
“The main catalyst for this expected policy shift stems from inflationary pressures,” said Maya Bank economist Azril Rosli, who added: “We believe that this persistent inflation target is enough to provide BSP with some policy space to support economic growth without compromising price stability.”
Inflation was 1.7% in the first seven months of the year, 1.6% higher than BSP’s full-year forecast.
“Price growth has provided relief for both consumers and businesses to provide for inflation from 2022 to mid-2024,” Sarah Tan, an analytical economist at Moody, said in an email.
Research by Deutsche Bank says inflation may fall below the BSP’s 2-4% target by early 2026.
“President Marcos’ order to suspend rice imports from September to October this year may increase some inflationary impact, but it is unlikely to lead to excessive inflation rates for the duration of the period, prohibiting suspension or raising tariffs on rice imports any extension,” it said.
Earlier this month, President Ferdinand R. Marcos.
“Although reading of CPI (Consumer Price Index) should accelerate from here, including domestic water prices, oil reversal should maintain inflation,” Ing Bank said in a report.
Growth slows down
Reduce economic growth potential Analysts say this is also a factor in the Monetary Commission’s decision to continue to relax the cycle.
“Economic growth is still struggling to regain positive momentum, as we’ve all seen in this month’s Q2 GDP (gross domestic product) release and inflation remains comfortable below the BSP’s target range, a situation that we think will persist until the end of 2025, providing the Board with ample room for more easing,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said in an email.
During the April-June period, GDP increased by 5.5% annually, from 5.4% in the first quarter to earn revenue, but grew slowly than 6.5%. Second quarter of 2024.
Angelo B. Taningco, chief economist at Security Bank, said the monetary committee may consider “need to accelerate GDP growth” that growth in the first half is much lower than the government’s target for the year.
In the first half of the year, the Philippines’ GDP grew by an average of 5.4%, slower than 6.2% a year ago. This is slightly below the government’s growth target range of 5.5% to 6.5% this year.
Oikonomia Advisory and Research, Inc. “Creat” economic growth and target inflation will prompt BSPs to continue to relax to increase consumer spending and business expansion,” said Matt Reinielle M. Erece, an economist, in Viber’s message.
Marian Monette Q. FlorendofMetrobank’s Icer said.
The challenging headwinds caused by U.S. tariff rates are expected to put pressure on the growth momentum in the Philippines.
“As the economy remains competitive with external risks, such as U.S. tariffs and global policy uncertainty, BSPs may view a looser policy stance to provide more support to the economy and help achieve government growth goals,” Chinabank Research said.
Earlier this month, the United States began imposing a 19% tariff on Filipino goods.
“As a slowdown in global trade slowdown, lower policy rates will help support investment and credit. Credit, investment and consumption have improved so far, but have not seen rapid growth before the pandemic,” Dacanay said.
Chinabank Research said central banks could also consider the Fed’s policy direction.
“Given its impact on the U.S. dollar php exchange rate and its potential impact on domestic inflation, BSP may take into account the development of Fed policy,” it said.
Last week, Fed Chairman Jerome H. Powell said tax rates could be lowered next month at the U.S. Central Bank meeting, due to ongoing inflation and employment difficulties.
Mr Dhakani said the cut of 25 p.m. means narrowing the difference between the BSP interest rate and the federal funding rate cap.
“If BSP does release the currency Ins ins (this week), He said: “The upper limits for BSP rates and Fed rates will be narrowed to 50 barrels. This will be the narrowest policy difference since BSP moved to the inflation framework in 2002.
The upper limit of the federal funding target range is currently 4.5%. This interest rate is set by the Federal Open Market Committee and is the interest rate used by commercial banks when they lend to each other.
Ms Florento said the current peso level provides room for central banks to narrow the difference.
“The current USD/PHP level remains within the p56 to p57 levels, and the signal indicates that the peso has room to absorb a narrower IRD (interest rate difference). In addition, a weak USD The environment is expected to be partially offset Its impact. Ms. Florence said.
Further cutting
Analysts said they expect BSP to continue to relax in the fourth quarter. Following the August 28 review, the Monetary Commission is scheduled to meet again on October 9 and December 11.
Ruben Carlo O. Asuncion, chief economist at Union Bank of Philippines, said he expects the next tax cut as early as October 9, “assuming inflation still yields and growth continues to perform poorly.”
Mr Dhakani said he believes BSP lowered the benchmark by 25 basis points to 4.75% in the fourth quarter, while the benchmark by 25 basis points to 4.5% in the first quarter of 2026.
Metrobank chief economist Nicholas Antonio T. Mapa said BSP will continue to rely on data, but can lower interest rates again in December.
Emilio S. Neri, chief economist at the Bank of the Philippines Islands. BSP “seems to be determined” to cut again in the fourth quarter, “more in 2026”.
“We think the outlook remains uncertain and they may eventually get some cuts from next year or 2027,” he said.
Alvin Joseph AA Arogo, an economist at the National Bank of the Philippines, said BSP’s pause in October and December was “more cautious” due to inflation higher than 2026 and uncertainty about the Fed’s tax cuts.
Victor A. Abola, an economist at Asian universities and the Pacific, said central banks should be as aggressive in lowering tax rates as hiking in 2022.
“To be consistent, you need to do at least 50 basis points now and 25 basis points in a month. The economy needs to rebound very high nominal and real interest rates,” Abola said.
