In light of decelerating domestic growth momentum and a downward trend in inflation, experts anticipate that the Bangko Sentral ng Pilipinas (BSP) will maintain its current interest rates.
According to a Philstar report, Aris Dacanay, an economist specializing in ASEAN at HSBC, indicated that the BSP is likely to hold its policy rates at 6.25 percent during the upcoming rate-setting meeting on August 17.
Dacanay noted that concerns regarding reducing the policy rate have risen due to the slower-than-anticipated 4.3 percent economic growth experienced in the second quarter, a notable contrast to the 6.4 percent growth seen in the first quarter.
Although inflation remains above target at 4.7 percent in July, there has been a consistent trajectory towards the BSP’s goal range of two to four percent, following a peak of 8.7 percent in January.
“Despite the challenges in growth, we continue to expect the BSP to maintain the policy rate at 6.25 percent and only cut rates after the US Fed cuts its own. Since our baseline view is for the Fed to cut in the second quarter of 2024, we expect the BSP to begin its easing cycle in the third quarter of 2024,” Dacanay stated.
Moreover, Dacanay highlighted that the inflation outlook carries inherent upward risks, potentially prompting rate hikes to reemerge as a possibility for the BSP. Notably, rice export prices have surged by 20 percent since mid-July, and pressure on the peso is intensifying due to the narrowing interest rate differential between BSP and Fed rates.
