By Luisa Maria Jacinta C. Jocson, A reporter
BANGKO SENTRAL ng Pilipinas (BSP) continued with it easing the cycle with a 25-basis-point (bp) cut for the second straight meeting and noted more cuts to come.
The Monetary Board on Wednesday cut the target reverse repurchase (RRP) rate by 25 bps, bringing the key rate to 6% from 6.25%.
This was also in line with the expectations of 16 of the 19 analysts surveyed in a BusinessWorld poll last week.
The rates for overnight deposits and borrowing facilities have also been reduced to 5.5% and 6.5% respectively, and are scheduled to take ie.ftoday (Oct. 17).
The central bank has now cut borrowing costs by a total of 50 bps since it began its easing cycle in August with a 25-bp cut, ffirst rate cut from November 2020.
BSP Governor Eli M. Remolona, Jr. on Wednesday he said the Monetary Board’s decision was due to its assessment that “price pressures remain manageable.”
“For the balance, the domestic view of the inflation target and the expectations of the core inflation continue to support the BSP’s shift to a less restrictive monetary policy,” he said.
“Nevertheless, the financial authorities will continue to carefully monitor emerging risks.”frelationship, including geopolitical factors.”
However, the BSP official said the balance of risks in thefthe weather for the coming year until 2026 has changed, counting the expected increase in electricity prices and minimum wages outside Metro Manila.
The central bank reduced its basefforecast to reach 3.1% (from 3.4%) by 2024. On the other hand, we raisedfforecast to reach 3.2% (from 3.1%) in 2025 and 3.4% (from 3.2%) in 2026.
The adjusted inflation forecast has similarly decreased to 3.1% (from 3.3%) in 2024. Estimates for 2025 and 2026 increased to 3.3% (from 2.9%) and 3.7% (from 3.3%), respectively.
BSP assistant governor Zeno Ronald R. Abenoja said the right place to consider is infvision for 2025 to 2026.
“In 2025 and 2026, we see a slight increase, but still within target inflation rates and a slight increase is due to higher global oil prices, which we have seen again in the last few weeks, and other positive effects in the next 12 months,” he said.
Mr. Abenoja said tofThe country is likely to stay slightly below the mid-point of the BSP’s target of 2-4% for the rest of the year ffirst half of 2025.
“We may see inflation pick up in the second half of 2025 but still within the target range,” he added.
Headline inflation eased to 1.9% in September from 3.3% in August, its slowest print in four years, although Mr. Remolona noted that the slow printing during the month was due to base e.ffects.
In the first nine months, the subject entersfthe average reached 3.4%.
Meanwhile, Mr. Remolona also said that economic growth is expected to remain strong. Gross domestic product (GDP) reached 6% in the first quarter, at the low end of the government’s target of 6-7% for the full year.
“This isfit includes improved prospects for income and household consumption, investment, and government spending, supported by the start of the fiscal tightening cycle in August and the announced reduction in demand in October,” he added.
‘FOURTH STEPS’
The BSP official signaled the possibility of another 25-bp rate cut at the last Monetary Board meeting of the year on December 19.
If possible, this would bring the rate to a standstill at 5.75% by the end of 2024.
However, Mr. Remolona said a 50-bp cut in December is “impossible.”
“What would make 50 bps a situation where we see a sharp decline, but otherwise that’s a very aggressive cut,” he said.
In the year 2025, Mr. Remolona said it is also possible to deliver a 100-bp rate cut.
“An additional 100 bps (after the cuts we will have made in 2024) will be on the dovish side. It happens, but in a way,” he said.
The central bank will also choose another “limited approach” to its tapering.
“If we decide to sit down hard, as I said, we prefer to take baby steps in terms of adjusting the level of the policy. That is, 25 bps at a time, but not every quarter, or not every meeting,” said Mr. Remolona.
A LOT OF CUTTING
Meanwhile, analysts similarly expect further price cuts throughout the year until 2025.
Pantheon Macroeconomics Emerging Asia Economist, Miguel Chanco, said he sees “many more contractions to come.”
Although the title fitsfA breach may breach the 2% mark in October, this will not prevent the BSP from continuing its easing path, he said in an analysis.
“That means, we are waiting to enterfaccepting this low end for the foreseeable future without any unexpected shocks, leaving the door open for successive rate cuts,” said Mr. Chanco.
“Our current forecasts see average annual inflation falling to 2.4% in 2025 from 3.2% this year, as inflation is underpinned by devaluation.feconomy, which shows a relatively sluggish economic growth rate,” he added.
Capital Economics’ assistant economist, Harry Chambers, also said that inflationary pressures appear to be weakening.
“Food inflation and slow growth should be alarmingflation,” he said in the report.
Mr. Chambers said gradual reductions are possible in the following areas.
“The state of the economy provides an opportunity for loose financial conditions. “GDP growth slowed in the second quarter due to the decline in private consumption and exports,” he said.
“We expect growth to remain subdued after a combination of consolidation fical policy and weak demand for exports,” he added.
Mr. Chanco said the release of economic data for the third quarter will be important for the BSP’s next monetary policy decision.
The third quarter GDP will be released on Nov. 7.
“The third quarter GDP report due in early November will create a sense of urgency on the part of the Board, as annual growth is likely to slow significantly from the 6.3% in the second quarter and the base e.fthings will change for the worse,” he said.
On the other hand, Pantheon Macroeconomics sees the possibility of a 50-bp rate cut.
“We continue to believe that the pace of easing will increase to 50 bps each time from the December meeting, until the rate stops at the final level of 4% in the middle of next year,” said Mr. Chanco.
Meanwhile, Capital Economics expects a 25-bp cut in December.
“Our end-2025 interest rate forecast of 4.75% is more difficult than consensus,” Mr Chambers said.
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